Latest / The Personal Finance Club Show / Tariff Refunds, The Best Index Fund for Taxes, and The Nuance of 4% | Ep 27

Transcript

Tariff Refunds, The Best Index Fund for Taxes, and The Nuance of 4% | Ep 27 · The Personal Finance Club Show

0:00
Are you going to get a big tariff refund?
0:02
How can you save on taxes by juggling around which accounts
0:05
your funds are in? And how is investing like chess?
0:08
I'm going to tell you right now. Welcome back to the Personal
0:16
Finance Club show. Hey, Jen.
0:19
Hey, Jeremy, still that you see that you still haven't painted?
0:22
Still haven't painted yet a week later.
0:25
I'm either very lazy or we're recording these episodes
0:28
back-to-back. But I think for the next
0:31
episode, you see, if you're watching, if you're listening to
0:33
this, then you'll just have to use your imagination.
0:35
But if you're watching, I think you will see.
0:37
I actually have already ordered stuff that's going to go back
0:40
here to make it into a cool YouTube studio looking thing.
0:43
Yeah, my old office was like, I think it was like 1500 bucks a
0:48
month or something. And you know, I was only
0:52
basically going there just to film these episodes and
0:55
otherwise I was working from here in my little Home Office
0:58
and it just felt like, you know, too much money to waste and an
1:03
unnecessary commute. So doing the the frugal thing,
1:08
although the big downside is at the office, I had the most
1:12
beautiful fiber optic, fiber optic Internet connection I've
1:16
ever had and I sadly cancelled it.
1:18
I called it cancelled and like the guy's like when you want to
1:21
cancel it and he's like, I was like, I don't know, I'm moving
1:23
out today. So like today or tomorrow he's
1:25
like, OK, like my phone like went dead, right?
1:28
Then because it cancelled, I was.
1:30
Like didn't I pay through the end of the day?
1:31
Am I not being prorated like you coming out that's?
1:34
Hilarious. I was like, Dang, they like, I
1:36
mean, 8, I don't want like everyone hates every Internet
1:39
carrier for good reason, I think.
1:41
But AT&T kind of had their stuff together on that one.
1:44
Well, better that than them saying no you can't cancel for
1:46
six months from now I'm. Like, oh, you're locked in,
1:49
right? No, exactly.
1:50
I'm like, I don't think they're going to bill me again.
1:52
I do have to go return their router, but yeah.
1:55
But here in my home there's no fiber option so it's just cable
2:00
like it's 2002 or something. Yeah, we're both pixels now.
2:05
How does it feel I? Don't know I I used to look
2:08
clear to Jen because I had like really high upload speed.
2:10
Now I have slow upload speed. But you watcher are seeing
2:15
crystal clear videos of Jeremy and I because that's the magic
2:18
of Riverside and the Internet. We record locally and upload it
2:23
at some point later. Yes, is that is that Pfc sign,
2:28
does it light up or is it just hitting the sun?
2:31
Lights up, I ordered. Has it always lit up?
2:33
Is it the one from the office? I don't turn it on usually
2:36
because it just gets too bright. But yeah, I have this like, like
2:40
actual LED. It's like it's like actually
2:43
looks really cool on camera. Doesn't really look like much
2:45
because it's. I think I might try to get some
2:48
more lights to make the lighting look better.
2:51
I am a hobbyist photographer and everything I know about
2:55
photography is like, it's all about the lighting.
2:57
It's like what you're looking at and the lighting, that's it.
3:00
I don't think she's think about settings and it's like literally
3:02
like stand in front of something interesting and have good
3:04
lighting and then that's like what makes for these amazing
3:06
photos. Oh, it's the two rules of
3:09
photography. Yeah, personal photography club.
3:12
People always ask me like, oh, what camera do you have?
3:14
I'm like, it does. Oh, you think like it's it's,
3:17
it's a lighting, not the camera, but so apologies.
3:21
For my I'm excited to see the DIY experience of the office
3:25
improving. Yeah, maybe I should do a little
3:29
time lapse shirt on you. Should I'm going to still be
3:32
here with my Michaels plant and my green wall?
3:34
I'm not changing anything even though Jeremy wants me to
3:37
because that's too much work. Also, there's not a lot of space
3:41
like this wall is just right here.
3:43
I can. Touch it.
3:44
Yeah, no. Fair enough.
3:46
So you have a lot of space in front of you, don't you?
3:48
I feel like you have a. Big listen, it's a small
3:50
operation here. That's my dining room table
3:51
right in front of me, like. OK, no, hey, you can.
3:54
Only do so much. I've been there.
3:56
I'm lucky to have a a whole room.
3:58
Well, though I'm sharing my room with my infant son, it's 'cause
4:02
it's also his. Oh my God, not the pack and play
4:04
I love. It it's also well, he has like
4:06
an actual crib. We're like kind of in a
4:08
transition period. We're trying to like get him
4:10
out. He has an actual crib like in
4:11
our bedroom. We're trying to get him out of
4:13
that. So so now I'm the entire.
4:17
Father of the year, we'll make sure to send you a trophy.
4:19
OK. Let's get into our first
4:21
segment. What is it?
4:27
Hot Topics. What's the hot topic today?
4:30
These hot topics sometimes worry me, and this one does too.
4:34
What's the hot topic? Gosh, well, Jeremy, like how are
4:36
we going to say topical? Like everything that's a hot.
4:38
No, it's good. It's good to talk about.
4:40
But you know, I'm, I'm a Bogle head guy.
4:42
Bogle heads. We don't care about hot topics.
4:43
We care about cold topics which is by index ones.
4:47
We're speaking for the audience, not for you.
4:49
I agree. All right, What's our hot topic,
4:51
Jen? Tariffs cancelled.
4:55
Question mark, I have a post here that says I think it's New
4:59
York Times. Supreme Court strikes down
5:02
sweeping tariffs, a major set back for Trump.
5:05
What is going on? What does this mean?
5:08
Are tariffs cancelled? Let's easy question, right?
5:12
That's good. Let's let's like do a little
5:14
history lesson first. A tariff is a tax from the US
5:18
government tax to Americans, generally American companies
5:22
usually, sometimes individuals who imports stuff.
5:26
So you can actually see a tariff yourself.
5:27
If someone in Spain mails you a package and you arrives to the
5:32
post office, you have to go and pay the tariff at the post
5:35
office to get the package. Normally these days we don't do
5:39
a lot of that unless you have like friends sending you
5:42
something directly. Normally what happens is you go
5:44
to Amazon and you buy a phone case and then whatever company
5:49
is buying those phone cases from China when their shipment
5:52
arrives to a on a freighter in San Francisco or Boston or
5:56
wherever these freighters arrive.
5:58
Probably not Boston has come from China, but they have to
6:02
write a check to the US government.
6:05
And so, you know, Trump has always like portrayed this as
6:09
all we're taxing foreign governments like, no, we're not.
6:13
You can't do that. They would just say, no, we're
6:14
not paying your tax. You know, some foreign
6:19
governments don't like it because, you know, it makes
6:23
foreign goods more expensive. So if I was to buy a phone case
6:28
that's made in China, now there's like this tax built in
6:31
that the consumer pays at the end of the day.
6:34
And so I'm not going to get it. We've we've we've covered this
6:36
in previous episodes. But yeah, that's, that's what a
6:39
tariff is. OK, Normally if you impose a new
6:43
or greater tax, that's a law and it has to go through Congress.
6:47
And so this whole thing is really weird because there's
6:51
just like taxes up and down, left, right.
6:53
You get a tax, you get a tax, you get a tax, these these
6:56
specific types of import taxes called tariffs.
6:59
And you know, even when this happens, like, wait a minute,
7:03
how can he do that? Like you can't just make up a
7:05
new tax whenever you want. Well, Trump claimed he could do
7:10
it unilaterally, whatever he wanted based on the 1977
7:15
International Emergency Economic Powers Act.
7:19
And I'm going to read to you what this act says in short, or
7:22
I'm going to read you a part of it.
7:23
It says, I know if you got in your car today saying I hope
7:28
someone reads me 1977 tax law, you're in luck because buckle
7:34
up. I mean, I hope you're already.
7:35
Buckled, but buckle up, theoretically for this exciting
7:39
law. If you're not buckled for auto
7:42
safety, you should buckle up for 1977 tax code.
7:46
OK, buckle up your mind. Here we go after the So it's
7:50
only two senses. Here we go.
7:51
After declaring a national emergency related to an unusual
7:55
and extraordinary threat originating outside the US, the
8:00
president may investigate, regulate or prohibit foreign
8:04
exchange transactions, transfers of credits or payments involving
8:08
foreign interests, importing or exporting currents, currency or
8:12
securities. Regulate or prohibit
8:14
transactions involving property in which a foreign country or
8:16
national has an interest. And so basically it's saying,
8:21
hey, if there is some extraordinary threat out there,
8:23
the president can act quickly to like regulate transactions,
8:29
trade, whatever. And, you know, think about in
8:32
terms of, let's say country X bombs us tomorrow out of the
8:36
blue and we're selling bombs to country X.
8:40
You would you would expect to not sell them any more bombs
8:43
starting tomorrow, right? And so that's the kind of thing
8:45
you'd want to act on very quickly without having to pass a
8:47
law. I think that's kind of like the
8:49
spirit of this law. For what it's worth, it never
8:54
mentions tariffs. It mentions regulate and it
8:57
meant mentions imports and exports, but never says the
9:02
president can create new taxes on imports specifically.
9:06
He doesn't say that word. And so, you know, this is what's
9:10
been going on for the preceding year.
9:12
The, you know, Trump's been saying you get a tax, you get a
9:14
tax, you get a tax. And some of the importers sued
9:20
the federal government and said, hey, you can't do that.
9:23
That's not fair. The 1977 Emergency Powers Act
9:27
says it needs to be unusual and extraordinary threat.
9:30
Is that true? It doesn't even mention tariffs.
9:32
Is that true? And so then it went up to the
9:34
Supreme Court. And I think everyone pretty much
9:36
thought that the Supreme Court, you know, much of which was
9:39
handpicked by Trump at this point, would just rubber stamp
9:42
anything Trump's doing. But that's not what happened.
9:44
The Supreme Court actually said, no, those, the taxes that you're
9:48
levying are illegal. You can't use this 1977
9:52
International Emergency Economic Powers Act because it doesn't
9:56
say you can do that. And so the court, and I'm
9:58
quoting the New York Times here, says the court in this opinion
10:01
said that based on 2 words separated by 16 others in
10:06
Section 17 O 2A1B of the i.e. EPA regulate.
10:12
That's international. Does the initial International
10:15
Emergency Economic Power Act i.e., EPA.
10:18
So these two words regulate an importation separated by 16
10:22
other words. The president asserts the
10:25
independent power to impose tariffs on imports from any
10:29
country of any product at any rate for any amount of time.
10:34
Those words cannot bear such weight.
10:36
And so that was a ruling. They're saying, hey, dude, this
10:41
law you said you're, you're really, you know, hoping these
10:45
two words can let you do anything for any amount of time
10:47
for any product, yadda, yadda, yadda.
10:49
Not what it kind of was meant to do, which is if country X is
10:52
bombing us, don't sell country X bombs anymore.
10:54
That's what it was meant for. So now we're in this kind of
10:58
awkward situation because President Trump has been not
11:03
only imposing, but charging tariffs for a year or so.
11:08
And these importing, these American companies who import
11:11
them have been paying them. And we've collected over $100
11:14
billion of tariffs illegally. And my understanding, my
11:18
understanding is this, these tariffs were meant to fill like
11:20
a trillion dollar gap left by reducing taxes largely on the
11:26
wealthy. And so we're in this very sticky
11:29
situation where the tariffs are not legal.
11:32
We have this upcoming now big tax gap and all those companies
11:39
who paid the tariffs are saying, wait a minute, I paid you a lot
11:44
of money. I wrote checks to the government
11:45
to get my goods in from the shipping crate in the Bay.
11:51
I want my money back and there's actually more than 2000 refund
11:56
related lawsuits that are currently pending.
11:58
All these companies now are suing and saying I want my money
12:00
back. The New York Times called it a
12:03
head spinning process unparalleled and scale and
12:06
complexity to basically unwind all of these now formally paid
12:12
tariffs. How do you, like, give all the
12:14
money back to right people, yada, yada, yada.
12:18
And to maybe complicate or not complicate things further, the
12:22
same day that Supreme Court came down this ruling, Trump said,
12:25
OK, new tariff, 10% on everybody.
12:28
And this is not based on a 1977 law.
12:31
This is based on a 1974 law. And so he's going to even older
12:35
laws now to, you know, get his tariffs across.
12:40
And will those be met by lawsuits?
12:43
Almost certainly, right? So anyway, that's what's
12:47
happening. It's a mess.
12:48
We're in the middle of it. Some consumers have asked, wait,
12:53
do we get refunds? And the answer is no, you don't.
12:55
You didn't pay the tariff. You might have indirectly paid
12:58
the tariff because the phone case you bought, which should
13:01
have been 10 bucks, was 14 bucks or whatever.
13:04
And so is the phone case going to go fine?
13:07
You know, the phone case who maybe is due a refund because it
13:09
paid the import tax and maybe we'll get that refund, maybe
13:13
not, who knows. Are they going to go find all
13:16
their consumers that paid more prices during a certain window
13:19
and getting the refund? I highly fucking doubt it.
13:24
So, you know, the individual is just going to pay more money and
13:28
get nothing. And the government and the big
13:30
companies, you know, maybe get their stuff settled better.
13:35
I don't know. So yeah, that's the situation.
13:39
I do think that kind of highlights how tariffs are a
13:42
regressive tax. Parts of our tax code are
13:45
progressive, which means the more income you make per year,
13:49
the higher the rate you pay in all of your income, or at least
13:51
on the next marginal bracket of income.
13:54
But tariffs are really a tax on spending, and the billionaires
13:59
spend very little of their money.
14:00
They can't because not much stuff cost them much money.
14:02
You know, if you spend $100 million a year, that's in insane
14:07
amount of spending for anyone, even a billionaire.
14:09
But if you have $10 billion, a $100 million is what, 1% of that
14:12
or less? Whereas if you make $50,000 a
14:16
year, you're probably spending about $50,000 a year.
14:19
And so these tariffs indirectly being paid by higher prices to
14:23
consumers are getting paid by like regular people spending
14:27
regular amount of money and phone cases and things like
14:29
that, right? So, you know, not great in my
14:35
opinion, but what do you do about it?
14:37
You know, this is like a very macro issue.
14:40
You know, this is like being handled in court cases in the
14:43
Supreme Court and, and federal legislators.
14:47
And personally, you don't do anything about, you know, you
14:50
follow the 2 rules, you spend less, you make more, you do
14:53
whatever you can. You know, you certainly, I
14:55
wouldn't suggest predicting what's going to happen and
14:58
making move based on that. You just have to kind of play
15:02
the hands that are being dealt to as they're being dealt.
15:06
If you're a business, this doesn't really speak great for
15:10
filling you with confidence about what to expect for the
15:13
cost of your goods. You know, I have friends who,
15:16
you know, one of my friends who has that watering can business
15:20
who it impacted very directly because she ordered cans
15:23
expecting it to be a certain price.
15:25
But when they got delivered, this new tariff was implemented.
15:27
She had to pay that tax and now the price to consumers has to go
15:31
up or her profit margin goes down and she doesn't know the
15:34
next, you know, pallet of cans she orders what the price will
15:39
be for those because these tariffs are getting, you know,
15:43
in and out over time. So that's the situation.
15:48
It's messy. You know, it's I feel like
15:50
everyone's so sick of tariffs at this point.
15:52
We're kind of like, OK, I guess should cost more when you order
15:55
overseas. Maybe sometimes or maybe not.
15:58
But it is it is interesting at least that the, you know,
16:01
Trump's largely hand picked Supreme Court ruled against him
16:05
and kind of was one of the few, you know, guardrails on
16:10
executive power that we've seen in this administration.
16:15
Yeah, that's my thought exactly. I mean, my first thought,
16:18
honestly, I wonder how many people were like me was I
16:20
thought it was kind of a done deal, which tells you how much
16:22
I'm paying attention to what I'm sure these news articles have
16:25
been saying all along. But then I also, my second
16:28
thought was, even if it's not a done deal, the Supreme Court is
16:31
stacked so heavily in Trump's favor that they'll do what
16:33
they've done with pretty much every other decision, so I'm
16:35
surprised. Wait, what did you think was a
16:37
done deal like these tariffs are?
16:39
Serious. I thought it was I.
16:40
Mean they were a done deal, like they're being paid and now
16:42
they're they need to undo the deal because you know.
16:47
I didn't know that was even something that was possible
16:49
though. I don't think anyone else.
16:51
I mean, I think, you know, I think we're all in this boat,
16:54
which is like, can you get a refund on a now declared illegal
16:57
tax? I don't think anyone right.
16:58
Yeah. So I don't think it's like
16:59
billions of dollars, correct. Yeah, it's like over $100
17:02
billion. Wow.
17:06
OK, well that was actually a really great explanation.
17:08
And I know that you hate talking about tariffs, but you are doing
17:12
the Lord's work by telling, breaking it down like this.
17:16
I guess I know. That's what you welcome.
17:18
As a goal. The Lord's like I have much more
17:21
important work than this to. Be taxed.
17:24
OK, well, great job. I appreciate you.
17:26
And I'm sure our audience does as well.
17:27
Let's move on to our next segment.
17:30
Money. Money.
17:32
Can I ask a dumb one? You're asking smart questions to
17:36
dumb to a dumb dude. What's the question today?
17:39
Dumb dude, love it. OK, we got a question from Mike.
17:42
He asks 2 questions. One, which index funds are a
17:46
better fit for a Roth IRA and which are better fit for a
17:49
taxable brokerage account? And two, I know they're more or
17:53
less equal, but for total returns, is it better slash
17:56
smarter to invest in a total market index fund like FZROX or
18:01
an S&P 500 index fund like FXAIX?
18:05
Mike, bro, bro, you got to go back.
18:09
You got to go listen to episode 21 because in episode 21, you
18:13
know, I show the chart and they're all their lines are red
18:16
on top of each other. So the answer to your question,
18:17
I'm going to be brief because you got to go back, listen to
18:19
episode 21, go to the Jeremy Had Time Today segment, because I
18:22
just break it down. I break down almost exactly what
18:25
you're talking about, F0X versus FXAIX.
18:29
And you know, there's very, very nuanced differences, but they're
18:34
exactly the same. So the answer is it doesn't
18:35
matter. Just pick one and roll with it.
18:37
That said, I think what you might actually be wondering is
18:40
something slightly different, which is a topic called tax
18:45
efficient fund placement. The two funds you mentioned are
18:49
identical, so it doesn't matter. But sometimes you have different
18:51
funds. For example, you might have a
18:53
total stock market fund and a total bond market fund.
18:57
And if you ask that question, hey, which funds should I put in
19:00
a Roth IRA and which one in a taxable brokerage account that
19:04
has a maybe potentially more interesting answer?
19:07
And what tax efficient fund placement is?
19:11
It's basically saying, OK, you have your asset allocation,
19:15
which is I want 50% U.S. stocks, 30% in international stocks and
19:20
20% bonds. That's like the pie chart of the
19:22
things you own, then which funds you put in which account,
19:26
because there are really three major buckets or types of
19:30
buckets. 1 is a regular old taxable brokerage account.
19:35
That's money that's you can put infinite money in and out
19:37
whenever you want with no restrictions, but you pay tax on
19:41
the growth and you also pay tax on the dividends.
19:44
You know when you sell a fund, you pay tax on the growth and
19:48
you pay it at the capital gains tax rates either short term or
19:51
long term. So basically there's tax rules
19:54
for the taxable account. Then you have a traditional
19:57
retirement account that's like a Traditional IRA or 4-O1K.
20:02
Any contributions you make to those accounts goes in there
20:05
without paying income tax on it. So for example, if you make
20:08
$50,000 a year and you put $5000 into a Traditional IRA, the
20:13
government only taxed you this year as though you made $45,000.
20:18
Then you pay tax on everything you withdraw when you take it
20:21
out. And then finally, I know I'm
20:22
just rifling through these. So if this is all brand new to
20:25
you, then you have to go back, listen to some other episodes.
20:27
But just as a recap, the third bucket is the Roth bucket, which
20:31
is like a Roth IRA or Roth 4-O1K.
20:34
Money goes in there after tax. So you are, you do pay tax,
20:37
income tax on it if you put money in there, but then it's
20:39
never ever taxed again. And each of these three buckets
20:43
has slightly different tax advantages.
20:48
And because they have different tax advantages, you might use
20:50
them differently. And so basically tax efficient
20:53
fund placement says, hey, put different funds in different
20:56
buckets to minimize your total tax.
20:58
And if you do all that, you could actually realize maybe
21:01
like, you know, not even 1%, but maybe a little bit less than a
21:03
percent, like half a percent of overall gains improvement
21:08
because you're paying a little bit less in tax and half percent
21:12
over the decades can be meaningful.
21:15
And So what it basically says is in traditional accounts, you're
21:18
going to want to put funds that have high taxable income,
21:22
notably bonds or wreaths. Those are real estate investment
21:25
trusts or any sort of real estate investment or actively
21:29
managed funds. If you're investing in the
21:30
actively managed funds, although you probably know if you're
21:32
listening to this show, so that's for traditional, for
21:35
Roth, you put your highest expected growth funds, which is
21:40
going to be like small cap funds or aggressive equity funds.
21:42
And so basically, you know what? I think it was Peter Thiel, the
21:47
billionaire psycho guy. He I don't.
21:50
Know billionaire psycho? I don't know if he's a psycho,
21:52
AMITA. Jeez.
21:54
Dragged his name for the mud, but he's he, whatever he is.
21:57
He did something very clever, which is he would buy shares,
22:01
almost worthless shares of like tech companies in their infancy
22:06
when they're being founded and put them in his Roth IRA and
22:09
then they're never taxed again. And so even though it's like
22:12
technically under the, you know, the income limit, because they
22:14
put like 100 bucks in there or something, it could go to a
22:16
billion dollars and it's a billion dollars tax free.
22:18
That's like the dream use of a Roth IRA because you don't pay
22:22
tax on any of that growth. And then the finally the taxable
22:26
account is like anything that's left over.
22:28
If we could put everything in the other two buckets, we maybe
22:31
would, you know, ignoring the 59 1/2 withdrawal age, but a
22:35
taxable bucket bucket, you'd put things like broad stock market
22:39
index funds, ETS and long term individual stocks.
22:43
And that's kind of traditional wisdom, which is hey, the high
22:49
tax or the high income kicking off things like real estate and
22:54
bonds, put in your tax deferred account like traditional high
22:58
growth things, Roth, everything else taxable.
23:00
That said, you know, when I pull out my spreadsheet and I do the
23:04
math on this, it doesn't really make that big of a difference.
23:09
You know, first of all, in your own situation, you have to look
23:13
at, you know, Mike here, he, he talked about the Roth IRA versus
23:17
the brokerage account. What are the sizes?
23:19
What are those sizes of those accounts?
23:22
In the most extreme case, they'd be equal size, right?
23:24
They'd be 5050 because that's what it would make the biggest
23:27
difference. And the other extreme case where
23:29
it'd make no difference is like if you only had like 1% of your
23:32
money was in a Roth IRA and 99% of your money was in a brokerage
23:35
account. You know, it doesn't, it's not
23:37
going to make a big difference because you just don't have that
23:39
much of either account to make a difference.
23:42
And same for the opposite. If it's 99% Roth, 1% brokerage
23:46
doesn't make a difference there because everything's going to be
23:48
in the Roth. And so, you know, only when you
23:51
kind of have like equal size accounts and equal size funds
23:55
doesn't putting these in make any sort of difference.
23:58
And Even so, you know, it's just, you know, when I do it,
24:02
it's, it's like way under 1% of ad gain.
24:06
And when, when I'm talking about way under 1% of ad gain, my mind
24:11
goes to, OK, what mistakes can I make here that would hurt that?
24:15
Because maybe I just introduced complexity.
24:17
This whole thing was probably not that fun of a segment
24:20
because it's it's kind of complex and maybe I've
24:22
introduced complexity to my life that hurts my life.
24:25
Or maybe I've introduced complexity to my investment
24:28
strategy that will make cause me to make a mistake because, oh, I
24:32
forgot to rebalance or I put this fund in the wrong place or
24:34
I bought the wrong amount of this fund.
24:35
And so if you just bought a target date fund and put the
24:38
exact same fund in all three accounts, that would be fine.
24:41
Or if you put had a three fund portfolio and put 3 ETFs in your
24:45
Roth IRA and three ETFs in your four O 1 Ki mean you can't in
24:48
your 4-O1K, but the equivalent and three TFs in your brokerage
24:51
account, that'd be fine too. And so, you know, Mike, to the
24:56
question you're asking FZROX versus FXAX, just pick one.
25:01
Doesn't matter if you want me to choose for you, pick FXAIX.
25:06
And then in terms of the tax efficient fund placement
25:10
question, if what I just said to you strikes a chord with you and
25:14
you really like the stuff and you like spreadsheets and you
25:16
like theory, you know, I didn't even get to the other problem,
25:19
which is, you know, traditional logic says put bonds and wreaths
25:24
in to your traditional bucket. But there's the opposite logic
25:29
might be true too, which is you actually want, you know, bonds
25:31
don't grow very much and so you actually want more money at
25:35
possible in your tax advantage accounts.
25:36
So but that logic, bonds should not be in your tax advantage
25:39
accounts and your stock index fund should be, because then
25:42
your tax advantage accounts will just grow bigger and have more
25:45
money being shielded from, you know, or having those tax
25:48
advantages. And so even that speaks to the
25:51
real nuance here. Oh, my gosh, this is like, Jen,
25:54
we need to get the nuance. Yeah, slide whistle.
25:58
We need to get the nuance. I wish I could do that crazy
26:02
whistle. Like lawn.
26:04
What's that thing, that air, that leaf blower that everyone
26:06
hates? Like the gas power leaf blower.
26:08
We need the Nuance gas power leaf blower.
26:12
Yeah, trying to trying to work out of here, Jesus.
26:16
Because it's like, OK, well, what's your tax rate going to be
26:19
now versus what's it going to be in retirement?
26:21
And like, how long are you going to be doing this?
26:22
And then and, you know, like there's all this, all this
26:25
stuff, and it's like if you have a theoretical quarter of a
26:29
percent gain, if all that stuff goes perfectly, the, the theory
26:34
is going to fall apart by a time reality kicks in and you're
26:36
like, oh, actually I didn't, my tax rate went down or I
26:39
whatever, you know, right. So yeah, I, I don't worry about
26:44
that myself, really. I just put my funds in my
26:47
accounts. I would like to defend Mike
26:50
because he did ask this question long before we recorded episode
26:54
21, but. Sometimes I found.
26:57
A little side quests and like I answer the new questions I get
27:00
sidetracked. I tried to mix it up a little
27:03
bit too. So I just want to defend Mike
27:05
because he's not here in the chat to defend himself.
27:09
I really did lay into Mike and Mike I all those personal
27:12
insults about your appearance. I apologize.
27:15
I said I was going to go off to your family.
27:17
That was the way out of line. I don't even, you know, you
27:19
don't have to do all that. Your family, you know, I'm still
27:22
thinking cartel stuff because I was in a, you know, trapped in
27:25
Florida. You're on trauma.
27:27
You can't be. Are you bringing that into into
27:29
this session? Sorry, Mike, but it you know,
27:32
and Jen, you've only been Holly. You've been with personal fines
27:35
clip over a year now. I've been doing this for six
27:38
years and spoiler alert, you answered the same questions all
27:42
the fucking time. That's not my whole life, but
27:45
that's great because, you know, this is a place that's safe for
27:47
beginners. And I think even the experts
27:49
need a reminder that it simpler is better, you know, simpler.
27:54
And there's nuance, you know, it's like everybody's thinking
27:56
about their own fight. They're like, OK, I know you
27:58
said that about Ashley, but what about me and Mike?
28:00
You know, is it different for me?
28:02
And then the answer is no, Mike, it's not.
28:04
You're not, you're not terminally unique.
28:07
You know you're just going to do the same stuff that everybody
28:08
else is doing. After defending Mike, you just
28:10
told him he's not special. Mike, you're special.
28:13
I know you have the number one most common name for for men,
28:15
but I was just kidding. Is that even true?
28:19
I think it's. Chris.
28:20
Maybe it's, I don't know. Jennifer is definitely for 80s
28:23
kids was way up there. Jenns and Jess's, I got news for
28:27
you. You're gonna have like 3 in my
28:29
third grade class. Same.
28:30
You're gonna have old lady names in 30 years because they were so
28:34
popular they became totally unpopular.
28:36
So now everyone everyone named Jen and Jess is like in their
28:39
30s and 40s. Like in Dancing Through Time.
28:42
Well, Mike and your regular name and your regular question, I
28:46
hope that you that helped. Man, you like accused me.
28:50
I didn't even say anything to me about Mike.
28:51
I just told him to go listen to the left side and you've been
28:53
tearing him through the drag him through the dirt.
28:55
Question like 6 months ago so hopefully he still listens.
28:57
He's probably like, I gotta answer.
28:59
My question Mike's like, oh, I'm homeless now.
29:01
I don't have that problem anymore.
29:02
I have. My life is falling completely
29:06
back. Oh, back when I could invest
29:07
money, that was great. The tariffs have ruined me.
29:10
I'm He's one of those 2000 petting lawsuits trying to get
29:13
his tariff money back. Trying to get his money back.
29:15
I was an importer, yeah. Go.
29:17
God, Poor Mike. All right.
29:19
Well, I hope that answered your question, and I hope you're
29:21
still listening. We'll move on to our next
29:24
segment, Scroll Patrol. Scroll Patrol.
29:32
Heyo, so I've got a video here that I have sourced from the
29:35
Internet. Ever heard of it?
29:37
And Jeremy's going to watch it for the first time.
29:41
You might have to download it. I got it.
29:43
OK, and we're going to watch it together.
29:46
He's going to react and grade this video, so why don't you go
29:51
ahead and click on that and we'll talk about it.
29:53
May I ask a question because someone didn't bring this up?
29:55
Would you get rid of your stocks in these companies?
29:58
Oh, that's a tough one. I know.
29:59
That's what I thought. I thought it was a good
30:00
question. OK, this is the bottom line.
30:05
I think I'm going to have to. I'm also thinking about
30:08
transferring all of my stocks and bonds and assets from
30:12
Goldman and going either to a regional bank or even a Canadian
30:17
bank. I don't want to hurt Americans,
30:19
but I think I might go to a regional bank.
30:21
I am going to try and walk the walk here and everyday I'm I'm
30:24
unsubscribing or cancelling from something but yeah.
30:27
It gets easy to harder. That's it was a good question
30:29
for a listener. OK, so context is the caption
30:32
was would you get rid of stocks and big tech companies at a part
30:35
as a part of your economic resistance?
30:39
Yeah, that was a good question. Kind of talked about before.
30:43
I remember 1 listener had a question that was like, should I
30:45
not invest in these companies? And you're like.
30:48
And so that's Scott Galloway and we've, I think we've had did one
30:53
scope patrol on him before. And you know, I like him.
30:56
He's like a thoughtful guy. I think he's, you know, I think
31:01
people probably say he leans left, but he's like a, you know,
31:04
100 millionaire kind of successful business guy and I
31:09
think is maybe more of a centrist or something.
31:11
I don't know. This isn't pop up politics.
31:13
It's about you started it. I know, I don't know, that's
31:17
some I'm checking yourself yelling at myself.
31:21
OK, so, you know, we personally have different opinions on this.
31:26
You know, first of all, it sounds like he owns individual
31:29
stocks. You know, the question for me,
31:32
would it be would I sell those stocks?
31:33
The question would be like, would I seek out an ETF or index
31:37
fund that only has good companies in it?
31:41
And and then we also have different takes.
31:44
His take is basically like, yeah, I'm going to get rid of
31:46
those. But he kind of quickly pivots to
31:50
I'm going to do business with a regional bank.
31:54
I'm going to cancel subscription from a tech giant or whatever it
31:57
is. And you know, the answer I
32:00
always give is, you know, holding an index fund doesn't
32:06
really do much of anything to help the individual companies in
32:10
that index fund. You know, like who owns the
32:13
stock at any given point. You know, Tesla doesn't care
32:18
about. They probably have a slight, you
32:20
know, certainly the owners have a slight preference for higher
32:24
stock prices, but just simply being an owner doesn't
32:27
continually give them any benefit.
32:30
The dramatically bigger issue is who you're consuming with, like,
32:36
who are you consuming? And so he said, I'm going to
32:38
leave Goldman Sachs and use a regional bank.
32:40
What he meant is like, I'm going to stop giving them my business
32:43
and start giving my business to another bank.
32:44
Or he said, I'm going to cancel subscriptions.
32:47
And so like, if you don't like Meta, not owning Meta stocks,
32:51
not going to do anything to Meta.
32:53
But cancelling Facebook and Instagram and WhatsApp and the
32:57
rest of the Meta ecosystem. If everybody does that, that
33:00
would be dramatically bad for Bennett.
33:03
That would be the end of their business.
33:05
And so I think a lot of times people think that there's like
33:09
passively benefiting these huge companies when you're not
33:12
really, but I think also you're actively benefiting them by
33:15
using their products and services.
33:16
And so my answer is always like, don't worry about the index
33:19
fund. That ain't that ain't the
33:21
problem of the world. Go change your consumer
33:24
behavior, which is much harder to do, by the way, you know if
33:26
you want cigarette companies to go out of business, stop
33:29
smoking. If you're a smoker, that's hard.
33:32
If you want big tech to go out of business, stop using big
33:35
tech. That's hard.
33:37
Not because they're. You know.
33:39
Jen's like screwing your iPhone. What'd you say I'm?
33:41
Yeah bro, I'm not even paying attention.
33:43
You're cancelling my iphone's like your, your iphone's
33:46
probably safe for a while. So, you know, first, you know, I
33:50
like, I always think Scott Galloway tries to be a very
33:53
reasonable, thoughtful guy. And, and I think he's largely
33:55
putting his money where his mouth is.
33:57
I, you know, I guess I just want to point out the nuance there.
34:00
Like he's mostly talking about how he's going to change his
34:03
consumer behavior and not how he's going to change his
34:05
investing behavior. And that's what I think makes a
34:07
bigger difference. So I, what's his score?
34:10
A minus? You know, it's fine.
34:11
OK, whatever. OK, not impressed by Mr. Scott.
34:14
Stop using Facebook. Good luck.
34:18
Are you? We watch this on Facebook or we
34:21
use this on Instagram. Well, that's right.
34:23
Same company, huh? Yeah.
34:25
OK, a minus. Not bad, Scott.
34:29
Let's go on to our last segment of the episode already.
34:35
Money, money. Jeremy had time today.
34:40
When the comments section, you guys are just constantly taking
34:44
potshots of me, personal attacks like we did to Mike earlier and
34:49
and this is what I get to defend myself.
34:51
Yo, I forget like so I'm in the YouTube comments for this one
34:54
and I forget that we have YouTube, which is bad, but like
34:59
I was just like I, I, I don't I have like 4 followers across all
35:03
platforms so I don't have to deal with any kind of attention.
35:07
And sometimes you're just like. You know where you can go, Jen?
35:11
You can go to LinkedIn. We get a bunch of LinkedIn
35:13
comments. You can go to Spotify, we get
35:15
Spotify. I know some of the Spotify
35:16
commenters are listening right now because I think they are.
35:19
They I need something interesting.
35:20
They're all like, you're so great, let me not.
35:23
Make the meeest ones are probably on TikTok because
35:25
TikTok you know they're not. Or maybe LinkedIn, I don't know.
35:30
There's a lot of bots on TikTok. Yeah.
35:33
Any who so it's just interesting to actually like have people
35:36
perceiving you online. I'm like, that is weird.
35:38
I don't know if people I don't know if I meant for this.
35:41
OK, so I'm on the YouTube comments.
35:43
We talked about the 4% rule in one episode.
35:45
Do you want to give a little refresher on what the 4% rule is
35:48
before I read this comment? Yeah, it's basically a rule of
35:51
thumb to kind of quickly assess whether or not you have enough
35:55
money to retire. And if you look at your total
36:00
invested assets, you know, across IRA, foreign K, etcetera,
36:06
you take 4% on number, you can live on 4% of your invested
36:10
assets today and even account for an increase of for inflation
36:14
going forward indefinitely. So for example, if you have
36:17
1,000,000 bucks, 4% of that is $40,000.
36:20
That means your $1,000,000 invested can be pretty reliably
36:24
counted on to produce $40,000, even accounting for inflation of
36:29
annual income going forward for a long period of time.
36:33
Nice, and this commenter said. You left out a key component of
36:38
the 4% rule, asset allocation. The 4% rule doesn't work if you
36:43
have 100% of your money in tips. Tips.
36:47
You also left out the time horizon of a 30 year retirement.
36:51
A 45 year old retiring with maybe 40 to 50 years to live
36:54
would have a low probability of not running out of money.
36:57
Yeah, you know, this is like this is like in my like it's
37:04
like one of my least favorite types of comments.
37:07
You know, I guess insurance sales are my least favorite
37:09
comments, but this is this is the like, well, what about or
37:12
you forgot you left out this comment and the answer like, of
37:16
course that's true because you know, every piece of content
37:20
you're commenting on exists in a vacuum according to you.
37:23
And you know, this isn't the 30 page study.
37:27
This is me just briefly mentioning the topic or
37:29
whatever. Man, it wasn't even the comment
37:32
wasn't even fully in in good faith because he says a 4% rule
37:39
doesn't work to you if if you have 100% of your money in tips.
37:42
TIPS is treasury inflation protected securities.
37:45
It's basically like, you know, one of the safest bets in
37:49
investing, which is just keep your money in cash and increase
37:51
it for inflation and nothing else.
37:54
And so of course the 4% rule doesn't work there because
37:57
there's no growth. It just matches inflation,
37:59
doesn't grow 4% beyond inflation.
38:02
And so, and I think that was kind of like a tongue in cheek
38:04
example saying if you have like the most conservative portfolio,
38:08
I can imagine it wouldn't work. He could have said it wouldn't
38:11
work if you have 100% of your money in a checking account for
38:14
the same reason, right? By the way, I'm being too mean
38:18
to the commentary. Everything he's saying is is
38:20
right, by the way, like. How you know it's a he?
38:23
I mean, come. On Come on, girls can be mean
38:26
too, and wrong. Not like this, though, they're
38:29
not. They're not mean and wrong like
38:31
this. OK, sorry.
38:34
Continue. Do you know the gender of this?
38:35
I do. I do.
38:37
I looked it up earlier. It's definitely a dude.
38:38
Did you look it? Up you be in the comments yo.
38:41
Well, because you had a link right above it because I had to
38:45
go refresh myself and all of a sudden I'd be in the comments
38:49
like I'm in. And this video had a ton of
38:51
comments. I think it had two.
38:54
We're getting really popular now.
38:56
Let's see what is this commenter's name needs.
38:58
Help guys go to our YouTube please.
39:00
Howard Friedman. I'm pretty sure Howard's a
39:03
male's name doing that. It's public.
39:06
He posted it. You're the one that didn't want
39:08
to dox people. You.
39:09
Don't know any female Howards. I don't know.
39:12
I don't want to assume the gender Howard, you know, could
39:14
be. So he said he's right, is what
39:17
you're. Saying so yeah, everything he's
39:19
saying is basically right and you know, the Trinity study
39:21
really does kind of cap its look at 30 years.
39:25
If you're going beyond that to 4045 years, 4% might be slightly
39:29
too aggressive. You might want to do 3.5%
39:31
something like that. And and for more generally,
39:35
there's no guarantees, right? You know, this type of overly
39:42
surgical dissection of the 4% rule just like doesn't hit home
39:47
with me because he's like, well, what about a 50 year retirement?
39:51
This is this is my impression of me in 50 years.
39:54
I'm 95. Oh, I just ran out of money
39:58
because 50 years ago I set my flag in the ground and said I
40:03
will spend $72,300 each and every year from this day until
40:08
the end of days. And if it's not going to run out
40:11
because of the 4% rule and I'm never going to adjust anything,
40:13
I'm never going to react. I'm never going to change.
40:15
And now I've run out of money in my 92nd year.
40:18
I've made a critical mistake 45 years ago.
40:22
You know, like that's not how real life works.
40:25
The point of the 4% rule isn't. To have like a perfect
40:27
projection to the future and never ever change anything.
40:30
It's to get a general sense. Am I close?
40:32
Am I not? You know, if you need 3.9% of
40:35
your investment assets to barely cover your living expenses right
40:40
now, yeah, you're probably not quite there yet.
40:42
You know, probably want to get a little bigger buffer.
40:44
If you can live very comfortably on 2%, yeah, you should probably
40:49
be quitting your job and using your time now to do exactly what
40:52
you love because that's working, keep working.
40:54
But you probably don't need to be right.
40:57
And if you, by the way, if you're like right there at the
40:59
4% rule, you quit your job and then three years later you have
41:02
the worst three years of the market in history and you lose
41:05
your home and blah, blah, blah. Like you might want to like
41:09
rejigger things a little bit, not just die on that hill you
41:12
set your flag in because you're going to spend 4% of this
41:15
because that was the decision you made, you know, 50 years
41:17
ago. And so, you know, I, I, I think
41:21
people who like, are too concerned about this 4% rule are
41:26
people who are constantly look at their numbers, but don't take
41:28
into account the fact that they will continue to constantly look
41:30
at the numbers and, you know, reassess and re evaluate as time
41:37
goes on. So I still like the 4% rule
41:39
because it just, it gives you a really clear way to understand,
41:45
hey, am I in the ballpark or not right.
41:47
Without it replacing like a super complex 50 year, you know,
41:53
bulletproof plan because there's no such thing as a 50 year
41:55
bulletproof plan. No one knows what's going to
41:57
happen. Yeah, you don't.
41:59
You don't just want to be going on vibes, but you can also be
42:01
somewhat flexible when it comes to the rest of your life.
42:04
Yeah, so sorry, I I was mean to Howard.
42:08
And you're saying their name again?
42:09
OK, great, great. Like using the witness
42:12
protection program. He's commenting public comments
42:15
on YouTube videos with his name. Maybe he already put a
42:17
pseudonym. If you don't want.
42:19
If you don't want your name to be public, don't go commenting
42:22
on a hugely popular video that has Let Me check, Let Me see 634
42:29
views. That's not bad.
42:31
That's not bad. That's our YouTube history.
42:35
Hey, we have some in the millions, OK, It's a it's AI
42:38
think. That was before.
42:40
Me the The Halloween costumes always do very well.
42:43
It's a. I've tanked the Pfc YouTube
42:47
following. I mean, we're posting different
42:49
types of content, but it's a, it's a deeper audience.
42:52
The people hearing my voice now have a deeper audience.
42:55
But yeah, 600, and you're right, 634, if 634 people walked into
42:59
my house right now, I would say there are a lot of people.
43:03
Here, get the hell out. This is a.
43:05
This is a you. Fit 634 people in your house.
43:08
I mean it would not be safe. That would be that would be the
43:12
expire code. OK, well, thank you.
43:15
Thank you. You opt in to be roasted on the
43:19
pod, but you're probably not listening but.
43:22
I mean, if anyone's listening, it's someone who comments on our
43:24
YouTube. You know, yeah, that's true.
43:26
But like Howard, I mean, like everything you said was right,
43:29
but you know, my, my whole point is like, you know, we don't.
43:32
And I think, I think I might forgot to mention like, yeah,
43:34
the, the, the 4% rule itself relies on a 75% stock, 25% bond
43:40
portfolio. And so to Howard's point, you're
43:43
totally right. If you have a crazy portfolio
43:45
like 100% TIPS, that wouldn't make sense.
43:48
But at the other day, we're just kind of going for best
43:51
practices. I have a really good analogy.
43:54
I just thought of it maybe. Still no analogy?
43:56
Let's hear it. In playing chess, if you thought
44:00
reading 1970 was that this episode, it was wasn't it it was
44:05
1977. Tax cut is boring.
44:07
Wait till I give you a chess analogy in playing chess, I
44:11
think what a lot of amateur chess players think you're
44:15
supposed to do is think 30 moves ahead and and analyze every
44:21
single position and figure out what's going to go on.
44:25
But Magnus Carlsen, the, you know, arguably the greatest
44:29
chess player in history and unarguably the greatest chess
44:32
player, chess player of our time, says he rarely looks many
44:36
moves in advance unless it's like a very, very simple
44:38
situation where there's only so many things that can happen.
44:41
He's usually looking only, you know, a couple moves, two or
44:43
three or four. And what he's really doing is
44:46
just using best practices. So instead of saying, if this
44:49
happens and this happens, this happens and this happens 18
44:52
moves down, he says, I don't want to move my queen out too
44:55
early because that can get me into trouble.
44:57
I don't, I don't want to have my, my Rook against the edge
45:00
because then the Rook or I don't want, no, I don't want to have
45:03
my knight against the edge because then then the knight has
45:06
fewer place to move. And so you're just using a lot
45:08
of like best practices, like, Hey, these are the types of
45:11
positions that are going to put me in a better situation.
45:15
If not, I've guaranteed this is going to work 50 moves from now.
45:18
That's what like the world champion of chess is doing.
45:21
If the world champion of chess can go on heuristics and
45:23
positions, I think personal finance enthusiasts can do the
45:26
same thing. We're not saying, hey, invest in
45:29
these exact things because this is going to guarantee to work 50
45:31
years from now, Say, hey, we want to spend less money.
45:34
We want to take advantage of tax advantage accounts.
45:37
We want to live on around 4% of our income or less if we're
45:40
going to 4% of our net or investments or less if we can.
45:43
They are the kinds of moves that we're making that are going to
45:46
resolve long term success because like Magnus said, I
45:49
don't look 18 moves in advance because three moves later you're
45:52
in a different situation. Same for this 3, three years
45:55
later, we're in a different situation.
45:57
And you, you're putting yourself in generally good moves saying,
46:01
hey, I'm going to not live on dramatically more than 4% of my
46:04
investments, which is fine. And I think people would say,
46:06
OK, what if I do exactly 4% and then it fails like, well, you
46:09
might need to reassess a little bit, but you're probably gonna
46:13
be fine. OK, and if you're like me, I'm
46:15
the definition of heuristic involving or enabling discovery
46:19
or problem solving through methods such as experimentation,
46:22
evaluation, and trial and error. Do.
46:25
You remember, even I would. Just call it a rule of thumb.
46:29
I think that definition was more confusing than what I meant for
46:32
it to be. But yeah, it just means like a
46:34
rule of thumb, like a general. 1 is OK proceeding to a solution
46:37
by trial and error or by rules that are only loosely defined?
46:39
Does that make more sense? Yeah.
46:41
So you're saying, hey, generally speaking, you would want to live
46:45
below your means. Generally speaking, 4% means
46:47
you're on pace for an early retirement, things like that.
46:51
Without. Yeah, sorry, sometimes I revert
46:55
to engineering speak. Yeah, I'm fighting for my life
46:59
over here. All right.
47:01
Anyway, thanks, Howard. You're totally right.
47:04
Everything you're saying is correct.
47:05
But I think I take a little bit more of a relaxed approach
47:09
towards these types of things because we're not trying to
47:12
think 18 moves ahead, we're trying to just make good moves
47:14
right now. Be like Magnus Carlsen.
47:17
And on that note, give us the rules.
47:20
I'm so glad we got chess involved.
47:22
I play chess almost every day and I'm really not good at all.
47:25
Online. I plan my phone or on the
47:27
computer just like when I need like a mental break.
47:30
But the problem is I don't like practice or try very hard.
47:33
And so I just basically if I don't blunder my queen, that's
47:37
like a great game for me. Guess guess my ELO in the
47:40
comments. Please.
47:40
If you listen this far and you know chess and you guess my ELO
47:44
and the words. That you're saying?
47:46
If you guess my ELO correctly or whoever whoever guesses at the
47:49
closest across Spotify or YouTube comments, you're going
47:55
to win a free Pfc course. We'll e-mail it to you.
47:58
They all have it, Jeremy. They're listening.
48:00
ELO is the rating you get stands for something I don't know what
48:05
but every chess player like has a rating of how good they are
48:08
essentially. We're living in different
48:10
worlds, you and I. All right, but if you do want to
48:14
build wealth, you can follow these two heuristics.
48:17
Heuristic #1 live below your means and heuristic #2 invest
48:22
early and often. See you next time.
48:24
The personal finance club show is produced by Jeremy Schneider
48:27
and Jen Mundia, music by Essa Balu and Homie.
48:30
Send your questions to podcast at personalfinanceclub.com.
48:34
The Personal Finance Club show is Co hosted by Jeremy Schneider
48:37
who is a co-owner of Nectarine and SEC Registered Investment
48:41
Advisor. The views expressed on this show
48:43
are those of the hosts and guests and do not necessarily
48:45
reflect the views of Nectarine. Please refer to
48:48
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48:52
This podcast is for informational and educational
48:54
purposes only and should not be construed as personalized
48:57
investment advice or a solicitation to buy or sell any
49:00
security.