Latest / The Personal Finance Club Show / The 0% S&P Return, Borrowing Against Your Investments, and the Student Loan Fiasco | Ep 28

Transcript

The 0% S&P Return, Borrowing Against Your Investments, and the Student Loan Fiasco | Ep 28 · The Personal Finance Club Show

0:16
All right, you ready and close that door because I can hear
0:20
your kids. The door is closed.
0:22
Oh, no. All right, we got a pause.
0:26
So, Mateo, I love you desperately, but I'm doing a
0:30
recording for the next two hours, OK?
0:32
Yeah. Charlotte 17.
0:35
Yeah. Well, you can, but when when the
0:38
door is closed, that means I'm working, I'm working.
0:41
I'm basically on TV and I've been recording.
0:43
All right, we're 10 seconds into the 1st at home podcast
0:48
recording and it's going great. We we lasted.
0:52
I literally want to go back and get a count on that.
0:55
We lasted I think 10 seconds before a four year old burst
0:59
into my room without knocking. Why are you making him cry?
1:04
Well, he wanted to watch TV and I said when the doors close,
1:08
that means I'm recording. And I don't think he was because
1:14
his mom's also working and he's supposed to be at school and
1:17
he's sick. And, you know, there's all sorts
1:19
of compounding issues today, but I think he like caught wind that
1:24
Osna let him watch TV while we were both working.
1:27
And that's why he like burst into my room asking.
1:30
Oh my gosh, you look heartbroken.
1:32
Truly, I feel bad. Anyway, more with the new
1:36
studio. This is a home studio.
1:40
It looks great. It does look like you're in Star
1:42
Trek. Yeah, so I just posted Instagram
1:46
about this. The everything you see,
1:47
including the new haircut cost $440.
1:50
And what I did was actually really simple.
1:52
And if you're just listening to this, you're just kind of to
1:55
take my word for it, but I. Log on to YouTube so we can have
1:57
61 views. Exactly.
1:59
I'm sitting. I'm sitting in front of a white
2:01
wall. I was sitting in front of a
2:04
white wall, just normal, like residential white wall at a
2:08
home. And I painted the blue and then
2:10
I put some like dark brown IKEA floating shelves behind me.
2:13
And then I put some some LED lights on the shelves, like
2:18
light up the shelves and then put a few things like some books
2:20
and a little statue and stuff on the shelves.
2:23
And you know, each piece individually makes sense like
2:27
OK, blue axe and a wall because like blue is kind of our color
2:31
shelves books. But then like in totality
2:34
definitely feels like Star Trek. Someone D on me was like, you
2:38
kind of look like a tech bro douchebag now.
2:40
And I'm like, yeah. You, you look like a real
2:42
YouTube. OK.
2:43
I mean, you know, and you said is it always like, you're like,
2:47
you're sitting in the dark? It's like bright and sunny out
2:49
right now. I'm looking at a sunny San Diego
2:50
day with the window wide open. It's just like the, you know,
2:53
the interplay of like. Whenever you have like, LED
2:56
lights, it just makes it feel a little magical.
2:58
So yeah, you know, you're like on your way to being Hank Green,
3:01
so. Love it.
3:03
Yeah. I think this was Hank Green,
3:04
like 10 years ago. Now he's like you.
3:07
Know he's like in a cave. Yeah, but he's like, he's like,
3:10
I'm not doing this like cliche stuff like these lighted shells
3:13
behind me. I'm going to have like a yeah
3:15
cool science cave or something. I love it you.
3:18
Don't go do Hank Greenas. Now we do because, well, no,
3:22
he's the one that I he's one of like 6 that I got right.
3:26
Oh, OK. Did Hank Green OK?
3:28
Maybe he. Did Hank Green?
3:29
Yeah, you did. Yeah.
3:31
He was one of your people. But I he was the one that I
3:32
knew. And now I know who all those
3:35
people are. I know Alex.
3:36
I knew Ken Jennings. That's really the regret of my
3:39
life, not getting Ken Jennings. I'm such a that's kind of a
3:41
tough. Picture I should have should
3:43
have given you multiple pictures on that one.
3:45
It's OK, I was too nice to you. OK, so it looks great.
3:49
I think the consensus is that it looks amazing, but I think on
3:53
Instagram the comments are going wild.
3:56
Yeah, I think, I think I think it like looks like it definitely
3:58
like pops a lot more, but also kind of gives tech pro
4:01
douchebag. And you know, maybe that's not a
4:05
miss at all. Maybe that's a hit.
4:06
So anyway, Speaking of finance now, not tech pro, finance pro.
4:10
Speaking of finance pro douchebags, what do we?
4:12
What do we? Let's get into it.
4:14
We're going to get into our first segment, Hot Topics.
4:21
What is the hot topic of today? Hot topic today.
4:25
Super exciting, fun, positive, uplifting stuff.
4:28
Federal courts are ending the save repayment plan.
4:30
What does this mean for student loan borrowers?
4:34
All right, so you know how I love student loan talk, which I
4:38
don't really, but we'll go through it.
4:40
First of all, this is not to be confused with the SAVE Act,
4:44
which is the current legislation being debated in Congress, which
4:48
is the safeguard American voter eligibility.
4:50
They make these cute little anagrams for, you know,
4:53
disenfranchising voters. But basically it's requiring
4:56
proof of citizenship to vote and it's also called SAVE.
5:00
And this is fully something different.
5:02
The SAVE Act, the require citizenship proof positions of
5:06
citizenship to vote thing has not yet passed, has not yet law,
5:11
has not been signed and has, you know, many reasons to be
5:13
concerned about, including it's going to make it really hard for
5:16
people to vote if they don't have their birth certificate
5:18
handy or whatever. What we're talking about, this
5:23
is the SAVE plan, which was implemented a few years ago
5:26
under the Biden administration. And basically, if you went to
5:30
college and you borrowed money from the federal government to
5:34
pay for college, then you have to pay it back over time, like
5:37
any loan. But there are a bunch of, you
5:39
know, kind of swirling options of federal repayment options,
5:44
federal loan options to basically make it easy on you
5:47
because the government said, OK, well, if we're going to give 17
5:50
year olds a bunch of money to pay for college, maybe we should
5:53
also make it easy on them to pay it back.
5:56
And the save plan was basically a income based repayment plan
6:02
that looked at your discretionary income and only
6:05
asked you to pay 5% of your discretionary income for
6:08
undergrad loans and 10% of your discretionary income for
6:12
graduate loans, which is actually pretty nice.
6:16
You know, like obviously 5 to 10% of your, you know,
6:21
discretionary income is meaningful.
6:23
You know, it's probably more than you're spending, maybe on
6:25
travel, maybe on, you know, who knows what food, who knows what
6:28
else. But also it's like in the realm
6:30
of doable and there's also a income exception, an income
6:38
exemption completely for people who made-up to 2 or 25% of the
6:43
federal poverty line, which is roughly about $33,000 this year.
6:46
So if you make $33,000 or less, you have to pay 0 per month.
6:50
That's like your payment per month.
6:52
And then there's and also another nice thing about the
6:54
safe plan is that the income can't grow.
6:57
So a lot of times what happens to this is like a real thing
7:00
that happens to student loan borrowers is they make payments
7:03
for like 5-6, seven years. Like let's say they borrowed
7:06
$80,000, they're paying 500 bucks a month for eight years.
7:11
And then they check their loan balance and it's $100,000 and
7:13
they're like, wait, I've just been paying for eight years and
7:16
I've made negative progress. And it's it's like obviously
7:21
super discouraging and disheartening because you put
7:24
all this money back into it and you're worse than when you
7:26
started. That's because the interest on
7:28
the loan is growing faster than your payment.
7:31
And the save plan said, OK, that's too defeating to
7:34
borrowers. If their payment based on this
7:37
calculation doesn't cover the interest due, the federal
7:41
government will basically just pay the rest of the interest to
7:43
keep their, you know, principal amount flat at the worst.
7:48
And so for, you know, about 8 million student loan borrowers,
7:53
this was the payment plan they had opted into, and this is how
7:57
they were calculating their payments.
7:58
And this is how they're paying their loans back.
8:00
A federal court just said this is illegal for whatever reason
8:05
that federal courts do, political or not.
8:07
And so it looks like everything, you know, all these eight
8:10
million former students or maybe, yeah, former students who
8:14
are paying back the loans this way are going to do something
8:17
else. What the Department of Education
8:20
is doing is saying, hey, go to the other income based repayment
8:23
plan called IBR income based repayment.
8:26
And, and that under that plan, you pay 10 to 15% of your
8:31
discretionary income instead of five to 10%.
8:35
And also, I don't think the interest is or the the growth of
8:42
the interest is capped. So basically you're, you could
8:44
get back to that situation where you pay for eight years and look
8:47
at your balance and realize it's more than you borrowed in the
8:49
1st place. And so, you know, this is
8:51
obviously bad for people who are using that plan and depending on
8:55
it. So that's the situation messy.
9:01
There are a smattering of other current and future options too.
9:07
But you know, that could be an entire separate podcast on
9:11
student loans. But that's the situation at a
9:13
high level. What should you do if you're one
9:16
of these 8 million who borrowed the money?
9:17
Well, it looks like you should probably be moving to this IBR,
9:20
the income based repayment plan for now that's going to be worse
9:24
for you. But you know the best available
9:25
option. The even the income based
9:29
repayment plan has forgiveness after 20 to 25 years.
9:33
So basically if you make all your payments for 20 to 25
9:36
years, whatever the remaining balance is gets wiped out.
9:39
That sounds kind of good despite the 20 to 25 years part.
9:44
But it sounds like, OK, maybe there is light at the end of the
9:46
tunnel. If I'm one of these people who
9:48
can't even keep up with the interest.
9:49
But like let's say you're, you're balance grows to $150,000
9:55
and then that's wiped out. When it's wiped out, that is
9:58
considered taxable income to you that like gift of the, the
10:03
forgiveness is considered taxable income.
10:05
And so you're basically getting $150,000 gift of income from the
10:10
federal government and you have to pay tax on that.
10:13
So while your balance may go to 0, when your tax bill comes, you
10:16
have like maybe a $50,000 tax bill if you're in the 33%, you
10:20
know, margin, you know, 33% marginal tax rate.
10:23
So I don't actually love forgiveness either.
10:26
I don't love the idea of having the, you know, boot on your
10:30
throat for 25 years just to have like a different, you know,
10:35
existential debt problem at the end of the tunnel, right?
10:38
So, you know, anytime these days you talk about judges making
10:46
decisions and, you know, Congress passing laws.
10:49
I think a lot of people want to take their little litmus test.
10:54
Did you ever have a in science class?
10:56
Did you ever do a litmus test where there's a little strip of
10:58
paper and you dip it in and if it tells you if it's like turns
11:01
like blue for Democrat and red for Republican, maybe there's
11:06
acids and bases back then, but I think everyone's like dipped
11:09
their little litmus paper in there and see if this is like on
11:13
their team or not. And, you know, I hate that we
11:16
live in that world. And so I try not to promote that
11:21
type of litmus test taking and instead look at things in a, you
11:24
know, more unbiased way, Despite that being the world we live in.
11:30
But is it fair? I don't know.
11:32
It depends on your circumstances, right?
11:33
Like, I think there are people who are like, hey, I worked, you
11:37
know, I worked as a bartender, you know, 40 hours a week on top
11:40
of 40 hours of school. I like, scrimped and I saved.
11:44
I like, ate ramen noodles. I like killed myself to pay my
11:47
way through college while I watched these, you know, jerks
11:50
next door buy flat screen TV's with their, you know, their
11:54
federal loan payment just to now be in the real world.
11:58
We get the same jobs, the amount of money and my reward is now
12:02
they're getting their, you know, their loans forgiven while I had
12:05
like work hard for them. You know, I think there's like
12:07
credibility to argument. You know, I think the other side
12:11
of the coin is like, OK, you had such a shitty time, you want to
12:15
make sure everyone else is a shitty time too.
12:17
You know, you're like, I was stuck in traffic for three hours
12:20
going to work and then this guy gets to take a new highway to
12:22
work. You know, like, you know, I
12:25
don't know if that is really a great take either.
12:28
You know, everyone's probably trying to do their best, and I'm
12:30
sure there's specific examples of specific dudes that bought
12:34
flaskin TV's who are probably jerks.
12:36
But I think on the aggregate, I think most people don't want to
12:39
be buried in debt or try to do their best to get out of debt.
12:41
Right. So is it fair?
12:43
Kind of depends on your perspective on these federal
12:46
programs. I don't know.
12:48
What do you think, John? Do you think you you are you for
12:51
student loan forgiveness? Absolutely.
12:53
I don't. I don't.
12:54
I don't. Well, I guess I haven't had that
12:56
many conversations with people who have paid off their loans in
13:00
full who would feel that they wouldn't want other people to
13:04
not suffer. I think most people that I know
13:06
would want, like anybody who had a huge debt that was able to get
13:09
it forgiven for paying for many, many years would agree with
13:13
that. I don't know anybody in that
13:15
boat, but. That's a good point in.
13:17
Fact, you know, I haven't met anybody face to face has been
13:19
like, no, you know, it's like it feels like an Internet trope
13:22
almost as opposed to like a real person that exists.
13:25
You actually make an incredible point because when I've heard
13:27
that position, it's talking about a theoretical person out
13:31
there who, you know, lived on rice and beans and now is
13:35
offended that everyone else gets a free ride.
13:37
But like, yeah, when you talk to real humans on Earth.
13:40
And I was like, hey, like, I might get my student loans
13:43
forgiven. I've been paying them off for 11
13:44
years, and I think I might get them forgiven.
13:46
They don't say, fuck you, man. I worked hard in college.
13:49
You should. I want you to suffer for 20
13:51
years. Yeah, 20 years is long enough
13:54
now that I. Say it become out the woodwork.
13:56
But I haven't met that person yet.
13:57
So in my heart, I want to believe that most people would
13:59
want somebody who's especially because the the stipulations are
14:03
crazy. Like you do have to be paying
14:04
for 15 years. So it's not like you did
14:05
nothing. Well, you know, like the, the,
14:08
the forgiveness thing isn't any like walk in the park and, you
14:12
know, and. If you've actually been doing
14:13
that and you've been able to qualify for income based
14:16
repayment for that long, it means that you're probably not
14:18
doing well in other ways that I think that anybody with a heart
14:21
would say, I'm glad that you're getting these loans forgiven.
14:24
I yeah, that's a really good point.
14:26
I mean, I, I think that like when you look at these like
14:28
broad sweeping, you know, federal legislation, you can
14:32
probably look at these extreme corner cases and you're like,
14:34
well, what about the Bitcoin billionaire who just lived on
14:38
flat screen TV's in college and then became a billionaire?
14:41
And then technically it's income 0 because it's all on Bitcoin.
14:43
And then he gets a, forgive me, like, OK, that one theoretical
14:46
guy that you just made-up like that feels kind of unfair.
14:49
But like, you know, here on planet Earth where they're just
14:52
like regular people trying to work regular jobs.
14:55
It's not, you know, the the bulk of this.
14:59
Right, right. An Internet argument that
15:01
doesn't exist in relative. You got my vote.
15:03
You got my vote. All right.
15:05
So anyway, let me boil this down.
15:07
Yeah, let me boil this down to what I would do.
15:10
And The thing is, you know, getting into the nitty gritty of
15:14
like which forgive this program you go for, which repayment
15:18
program you go for is maybe worth it.
15:21
But I think it kind of is like missing the forest for the trees
15:25
or whatever that thing is, right?
15:26
At the end of the day, you want to pay off your loans, right?
15:30
I don't love the idea of just jumping through federal hoops
15:34
for 25 years to hope you get this forgiveness and then just
15:38
pay 1/3 of it in tax instead of all of it.
15:41
I would much rather you go nuts and pay off in like 4 years.
15:44
And have we talked about this, John, do you want to share?
15:46
Do you did you have any student loans coming out of college?
15:49
I currently still have student loans but you.
15:51
Still have student loans. I can disclose how much I don't
15:53
want people in my pockets like that.
15:54
Yeah, you knew that. OK.
15:57
Maybe I forgot. And how many years has it been
15:59
since you had those student loans?
16:00
2007 from undergrad those are those are done and then graduate
16:06
was like 2014. OK, so 24, so you're 12 years
16:10
and that's crazy. Are you willing to say like a
16:13
number of digits 5? No, I'm not gonna.
16:15
I don't watch all. Of my is it 7 digits?
16:16
You owe millions of dollars. Oh my.
16:18
God, does anybody owe millions of dollars in student loans?
16:21
Is that possible? No, some people do like doctors.
16:25
OK, so confirmed Jen doesn't owe $1,000,000 a student loan.
16:28
OK. But yeah, so this is like.
16:30
Not a doctor either, just. Not a doctor.
16:33
Yeah. So yeah, this is this is near
16:37
and dear to your heart, for sure.
16:39
And for me, you know, my personal situation is I got
16:42
through undergrad and grad school with no student loans,
16:46
but the way I did it was like largely, maybe even primarily
16:50
thanks to my parents. So I was just lucky, fortunate
16:53
privilege, whatever you want to call it.
16:55
My parents saved a saved college fund for me, which basically is
16:58
enough to cover like an in state undergrad education, which is
17:02
what I did. Then I worked every summer in
17:04
most school years. I also come out of high school,
17:06
got a track scholarship. And then it wasn't a full ride.
17:09
It was like a partial ride, but it kind of increased throughout
17:11
the years. And all that stuff combined
17:14
meant that that like, you know, college savings they've covered
17:17
for me had a surplus coming out of undergrad, rolled into grad
17:21
school, and then I started teaching in grad school, which
17:23
covered my tuition. And so it's like definitely
17:27
based in privilege and luck. You know, I was just born to a
17:32
upper middle class uterus in Southeast Michigan, you know,
17:37
but also. Like say that my friends are in
17:39
like 2 buckets year bucket where like their parents had a nestic
17:43
or they had saved for that and have the ability to save for
17:45
that. Or people who are like me who
17:47
are still paying it off because I did the same thing.
17:48
Like I was an RA. So I didn't even have to pay for
17:51
like any housing for a couple years in college.
17:54
I had several jobs, like I worked a student job and like I
17:57
worked at Best Buy, like like I worked since I was 16.
18:00
But because of my, my parents are first generation American,
18:02
like they came from Kenya. So like the fact that I was even
18:04
able to go to like a private school like Berkeley and things
18:07
like that were just like, I can't even believe I was able to
18:10
do that. But even doing the same things
18:12
that you did, like I just wasn't in a situation where I could
18:16
because my parents didn't. They were like, we'll sign your
18:17
my parents had good credit. That was like, the one thing
18:19
they did is like they kept their credit up so they were able to
18:22
sign this massive loan. But then, you know, life is just
18:25
life. So here we are.
18:26
That's a really, I actually really appreciate that contrast
18:29
because, you know, I, I was kind of making the point that like I
18:33
wasn't just like a lazy douchebag.
18:34
I was like working and stuff too, but Jen's like, neither was
18:38
I, you know, like and and, you know, frankly.
18:40
And I will say like prep is like there's definitely things
18:42
looking back, I could have like taken less because like there
18:45
was the time when you get the loan, you have like a little
18:47
extra and you're like, OK, I'm going to go buy myself XY and Z.
18:49
So there were certain things that I could have done in terms
18:51
of the loan itself and in terms of my money habits in college
18:54
that I could have done better. But in terms of like working, I
18:57
like started at a grocery store when I was 16 and have not
19:00
stopped and like including from college when I had friends that
19:03
like were out on the weekends because they didn't have to work
19:06
and they were just able to like do the college thing.
19:08
But it's just like, even that I feel like I am still in a place
19:12
of privilege because of like what my like my dad's a
19:14
professor, my mom worked at a university, you know what I
19:16
mean? Like, so there's certain things
19:18
that like, I find myself in the middle of like this poverty
19:21
line, but also like not that privilege of like a lot of my
19:23
friends because I was at a private school.
19:25
So like a lot of my friends, their parents were like, here's
19:27
your college money once they got there, you know, which impacted
19:30
their lives in college And now after, because I'm so close
19:33
friends with so many college people.
19:35
And like, it's like it changed their whole trajectory in terms
19:38
of like what they were able to do, like including like
19:39
internships, Like I can't do an unpaid internship, you know what
19:42
I mean? Things like that.
19:43
It's like anything I do, I got to get paid for.
19:45
So can I ask Berkeley, and this is Berkeley with two ES at the
19:49
end, not the California one, the East Coast music, music music
19:52
school Berkeley. But when you went to college, do
19:56
you have a sense of like the annual total cost of?
19:59
It was like 40,000 a year and I got a scholarship for 8000.
20:03
So like even that was like barely put a dent in like what,
20:07
you know, the current scheme of things, especially back then.
20:09
So and then I yeah, yeah, go. Ahead.
20:12
Yeah. So you're saying like, oh, I
20:13
could have done things better, but but that that kind of brings
20:15
me back to a point I always make, which is this is nuts that
20:18
we're like burdening our 17 year olds with this type of decision.
20:22
It's like, hey, do you want to go into, you know 40,000 * 4 is
20:25
$160,000 and is that does that include room and board or is
20:30
that just the? Yeah, that was everything.
20:33
And then I moved off campus for a year and then moved back to
20:35
being RA because I was like, I don't want to pay for housing.
20:38
I know it's like, yeah, so it's like, hey, 17 year old, do you
20:41
want to, do you want to go into $160,000 of debt to go to this
20:44
private college and you know, it's a 7 year old like I don't
20:47
know. I have no, I have no possible
20:50
like experience, context for knowing whether that's a good
20:53
idea. And the general sentiment seems
20:56
to be that college is a good idea.
20:58
So and private school seems to be a good thing.
21:00
So I will, you know, and then you know, then you're like, oh,
21:03
18 year old Jen, you shouldn't have like splurged and bought
21:06
that $50 iPod or whatever it is. You're like, OK, Like is that,
21:10
is that really the problem? Or was it the, the $40,000 a
21:12
year, like, you know, decision you had to make coming out of
21:14
high school? So yeah, it's all crazy.
21:18
But anyway, if you have student loans, this is my take, which
21:21
is, you know, I don't love the idea of stretching out as long
21:25
as possible and, you know, trying to lower your income to
21:31
qualify for lower payments. Like, I much prefer the other
21:35
extreme, which is try to make as much money as possible, try to
21:38
grow your career as much as possible and go totally ham on
21:41
these loans, right? You know, even for you, John,
21:44
like if you're 12 years in, like imagine if that student loan
21:46
payment goes to zero. That probably would make a
21:49
meaningful difference to your life, right?
21:51
And you know, I, I talked to some people who literally, I
21:54
don't think this is you for sure, but I thought talk to some
21:56
people who, you know, stay in careers that are less, you know,
22:02
less income because they get a lower student loan payment that
22:06
way. Or there's even like the public
22:07
service student loan thing where it's instead of 20 years, it's
22:10
10 years. But then they spend 10 years
22:12
working, you know, at like a low profit school or whatever it is.
22:16
Not that that's not noble work. It is noble work.
22:19
But if your only reason for doing it is to, you know, live
22:23
in poverty for 10 years to try to get your loans forgiven and
22:25
then pay the tax on those loans, I'd much rather you go work at
22:28
some soulless corporate America job for four years, pay it off,
22:32
be debt free, and then go work, you know, go do the public
22:34
service thing for 20 years or whatever in the way that you
22:37
want. So yeah, go ham, go nuts.
22:41
Like make huge chunky payments to those loans as fast as
22:44
possible, get out of debt. And then once you don't have
22:47
debt, it really opens up your options.
22:48
I know it's easy to say on a podcast and hard to do and and
22:51
you might be, you know, on a stuck situation, but that's,
22:54
that's my thing. That's the way I look at it.
22:57
I love it all right. This was This is a real student
23:00
loan convo. That was a real student loan
23:04
convo. Yeah.
23:05
Oh, my goodness. OK, great.
23:06
Let's get into our next segment. Money.
23:09
Money. Can I ask a dumb one?
23:12
This is where you ask smart questions to dumb guys.
23:16
Do we know the name of today's question ask or their location?
23:18
Do his name is MO MO which is a nickname but he asked for a
23:23
nickname and not. Oh, and it's OK to refer to him
23:26
as a he him. I believe so, yes.
23:29
Knowing the full name would be very surprising if this was a
23:32
girl. OK, well, you did assume the
23:34
gender. Got it.
23:34
I did assume I don't think I asked.
23:38
I've I've progressed and now my like my responses are like, can
23:41
I ask you your preferred pronouns?
23:43
But I, this is back when I'm like back in the archives.
23:45
I'm trying to get the people who ask questions at 1st and I
23:48
didn't ask that question back then.
23:50
So this is kind of a longer one, but I felt like the context was
23:53
worth it and I appreciate the question.
23:55
I think it's a great question. So MO says I have a taxable
23:59
brokerage account and tax advantage retirement accounts
24:02
all basically in BTSAX. I need to borrow some money
24:06
about $10,000 for a personal non medical family expense.
24:10
I would not be able to pay off $10,000 on a credit card within
24:13
one building cycle. I know touching the retirement
24:16
accounts is a no no and credit card debt interest rates are
24:19
insane. So I considered a personal loan
24:21
versus taking money out of my taxable brokerage.
24:24
As I researched online though, I read that a line of credit for
24:27
my taxable brokerage account may be best as there would be no
24:30
capital gains and I would not lose my investments performance.
24:34
However, when I looked at the line of credit from my Vanguard
24:37
account, I saw that the options are to apply for margin trading
24:40
or option trading, perhaps both. What consideration should I make
24:43
when choosing which of the two to select or both?
24:47
I'm not looking to make profits, but to minimize the cost of my
24:50
loan. All right, MO, So this is, you
24:54
know, good question. You.
24:55
You. They.
24:56
May have been also time sensitive so hopefully this is.
24:59
Most specifically, you're probably checking this like 3
25:02
months later. Being like this is no help.
25:04
But you know, let's be real here.
25:06
If you're if you're asking a question to a podcast, that's
25:08
probably not your if we're your if we're your financial advisor,
25:12
you probably can't expect really quick responses.
25:16
Try, you know, texting or something next time.
25:20
Just kidding. Go to hellanectarine.com and get
25:22
a real financial advisor. But so, yeah, you, you want to
25:26
take $10,000 you've, you've got, I assume you know, you didn't
25:29
give numbers, but you've got probably significantly more than
25:32
that inside of your investment accounts, both tax advantage
25:35
accounts and your taxable brokerage account.
25:37
And So what do you do? And you said so you said, hey, I
25:40
read that instead of just selling some of the shares and
25:43
taking the money out and spending on what I want, I could
25:46
take a loan out against with like backed by, you know, my
25:51
investments. And there's really two you said
25:53
options trading. That doesn't really make any
25:55
sense to me. I don't think that would apply
25:56
in your situation. I think there's really two types
25:59
of loans you can take out against your investments. 1 is
26:01
called a margin line, which basically you turn on for your
26:04
account. And then once you have a margin
26:07
account, then you can basically spend more than you have
26:10
available in there and it automatically just counts
26:14
against your investments. So, so so for example, if you
26:17
had $100,000 worth of investments, you could buy
26:20
$100,000 worth of VTSX and then it would go let you buy $20,000
26:25
more of Apple stock or something.
26:28
And so you actually own $120,000 worth of stock, but 20,000 that
26:32
is counted as debt. That sounds pretty cool, right?
26:36
You're buying $120,000 worth of stuff with only $100,000 worth
26:40
of original money. But there's a loan balance
26:43
there. You basically borrowed the
26:45
$20,000 from the brokerage. And that loan balance is really
26:48
high right now for Vanguard for a loan up to $20,000, it's 12%
26:53
per year. And so if you borrow at 12% per
26:56
year to go buy investments, you're on very thin ice, right?
26:59
Because if those investments are producing less gain than 12%,
27:04
you're actually losing money on the deal to interest.
27:06
And now and doesn't even conclude the risk, which we're
27:08
going to talk about in a SEC. So that's a, that's a line of,
27:11
that's a margin account. Basically, it just lets you
27:13
automatically spend more than you have.
27:14
And you can even just transfer money out of the margin account.
27:16
That just puts money on your loan.
27:18
And so like let's say again, you had $100,000, you could transfer
27:22
$10,000 to your checking account to spend on this family expense
27:26
that you mentioned. And then it's a bit basically is
27:29
debiting you that interest per day until it's paid back.
27:34
It's very flexible. It can, you know, it's literally
27:38
a day by day process, but it's also risky.
27:40
We'll talk about in a SEC. The other type of loan you can
27:44
take out against your investments is called a security
27:48
based line of credit or an SBLOC.
27:51
It's kind of like a what's the mortgage line of credit,
27:57
something lock. Heloc.
27:59
Yeah, it's like a HELOC except for it's a spill lock.
28:02
SP lock HELOC is a home equity line of credit.
28:07
SP lock is a security based line of credit.
28:09
Security is just a word that means stocks and bonds like you
28:12
know, stuffs you investments you trade on the Internet.
28:15
Basically security based line of credit are are a little bit more
28:20
like a bank loan than this really, really fluid margin
28:23
thing where you basically go to your brokerage, say, OK, I'm the
28:27
pledge this set of investments against a line of credit, I can
28:31
then draw against it and then there's going to be slightly
28:34
better rates. And so for example, at Fidelity
28:37
right now, if you want a margin rate, it's around 12% per year.
28:41
If you get a security baseline of credit rate, it's around 6 to
28:45
7% per year interest rate. So not like incredible rates,
28:48
but actually 6 to 7%. This isn't terrible these days.
28:50
It's kind of pretty similar to a mortgage.
28:54
And so which one should you do first?
28:58
Also security based line of credits.
29:00
That's kind of like more of an underwriting thing.
29:02
It's not like an automatic thing.
29:03
And so with margin accounts that lets you do it for like 10
29:05
grand. But the SP lock Fidelity has a
29:09
$500,000 minimum. And so you, you know, I don't
29:13
know, but if you're talking about a $10,000 thing that you
29:16
can't pay off on your credit card, you probably don't have
29:19
the half million dollars. I, I, I would guess, but maybe
29:21
you do, I don't know, but that's kind of like the trap there.
29:25
So let's do the math. Let's say you take.
29:29
The listener knows Jeremy has some charts going in our
29:32
document right now. It's very intimidating.
29:34
This is the segment of the podcast where I scream numbers
29:38
into a microphone and everyone. But they don't have to look at
29:40
this daunting chart. Yeah.
29:43
Well, we, we, we, we recently did a study and it showed that
29:47
12% of listeners to the personal finance club show who are
29:51
driving the highway veer off the highway and have a fiery wreck.
29:55
But luckily for us, we have so few listeners that that mount
29:58
sound to 0 we're. Not in that number.
30:01
Wait are you? Can we share this concealed with
30:03
this in the thing so people can see what I'm looking at?
30:05
Is that OK cuz? It's sure.
30:07
OK, Yeah. Yeah, put these images in there.
30:09
It's not. It's a.
30:09
It's a simple spreadsheet whipped up in 10 seconds.
30:12
Normally you're just like chatting in there.
30:14
And so I saw a chart and I was like, whoa, he went to work.
30:18
I work on all these anyway. So let's say you borrowed the
30:22
$10,000 from Vanguard and you get that 12% rate that you
30:26
suggested. And then then let's say you can
30:28
pay $1000 back a month. It's going to take you into the
30:31
11th month to pay it back. And then at the end of the
30:34
entire and at the end of 11th month, you'll have spent $104.00
30:41
more on the interest than the gain on your investments.
30:44
So basically because you did this borrowing this, this HELOC
30:49
or this S or this margin thing, this borrowing thing, you're
30:53
actually have less money than just doing the thing you're
30:57
trying to avoid, which is sell the shares.
30:59
So for example, the other option is you just sell $10,000 worth
31:02
of shares. You spend the money, whatever,
31:04
whatever you want, and then $1000 a month for the next, you
31:07
know, 10 or 11 months, you put it back into your investment
31:10
account and that money grows. If you did the sell your
31:14
investments thing and just pay yourself back, kind of like be
31:17
your own bank. I'm using quotes here because
31:19
that's the line that's often misused by insurance salesman.
31:23
But if you just treat it as a, as a bank, you take out the
31:25
money, you spend it, and then you pay yourself back over 10 to
31:28
11 months, then you'd have $104.00 more.
31:31
And that's because you are, and this is assuming, by the way, a
31:36
10% gain in the stock market that's been a historical average
31:39
and a 12% cost to the loan. And so if you're borrowing money
31:44
at a higher rate than you're earning, you're worse off by
31:47
borrowing. And that's frankly kind of like
31:50
a best case number. I guess the best case scenario
31:52
is you get just a lucky period of time where you're more than
31:55
12%, you actually do end up a little bit better, but still
31:57
it's really, really marginal. The worst case scenario is let's
32:01
say you have $20,000 worth of investments and you you borrow
32:07
$10,000 and then this Iran thing really goes crazy and then the
32:12
stock market drops by half and you're 20,000 drops to 10,000.
32:16
And what what happens is Vanguard gets nervous and they
32:19
say, oh, he has $10,000 of debt and now his investments are only
32:24
worth $10,000. This is our last chance to get
32:28
our money back before the market drops even more.
32:31
We're going to sell all this shares and pay ourselves back,
32:36
which they can do in a margin account.
32:38
They will automatically sell your shares to pay themselves
32:40
back as your, you know, as your investments are tanking, that
32:43
leaves you with 0 invested and that money spent, right?
32:46
So that's like much worse when you would have still had $10,000
32:49
invested if you just, or you would have had the, you know,
32:52
you would have had the half your shares invested if you just sold
32:55
your shares. So margin borrowing is very,
33:00
very expensive and very risky because if you borrow and the
33:05
market goes down, they sell your shares at a loss to make
33:08
themselves whole and you're left with paying all the interest and
33:11
having nothing left in the shares, right?
33:13
So I wouldn't do that. Let's say for example, you do
33:15
have the 500,000 and said the 12% rate, you get the 7% rate.
33:20
Now you're like, OK, wait, now I'm making 10%.
33:22
I'm only borrowing at 7%. That's like a 3% arbitrage
33:27
opportunity. Arbitrage is a fancy word to say
33:29
like, you know, move some money here from over there.
33:31
It'll make money on the difference.
33:33
And in that case, after 11 months when you're when your
33:36
debt is paid back, you would actually be ahead by 151 bucks.
33:40
And so over 11 months of kind of doing this arbitrage of this
33:43
$10,000, you would be ahead by 150 bucks.
33:46
But you know, is that a lot? Is that really like move the
33:52
needle kind of money for you for doing this like risky loan thing
33:57
where you're paying interest and that and that only works again
33:59
if you get your 10% rate. So for me, my bottom line is I
34:04
would not do any of these things for that $10,000 MO.
34:08
Bro, I don't know if this has already happened for you, but
34:10
all you other MO's out there listening and hopefully not
34:12
crashing to the median on the highway because you fell asleep
34:15
when I was shouting numbers on the microphone.
34:17
Don't borrow money against your, you know, investment portfolio
34:20
just to try to pay it back quickly.
34:22
Just sell a few shares and you know, in Vanguard you can go
34:25
sell the shares that have the least appreciation.
34:27
So you pay little to no tax on those and then pay it back over
34:30
a few months. No risk your you know, you use
34:33
your investments the way they're designed to spend money on
34:35
things that you want. You know, and I think people get
34:38
so fixated on this like clever financial footwork.
34:41
We're like, oh, I'm going to, I don't want to interrupt the
34:43
compound growth. And I want to, you know, you
34:46
know, use this tax free loan to build.
34:49
It's like all this clever stuff. But then you put the numbers in
34:51
this fancy spreadsheet that makes Jen very concerned and
34:56
like it's, it's a few bucks. It's like a lot of risk for
34:59
maybe a few bucks. And you know, frankly, in your
35:02
case, MO, you'd end up worse borrowing because you'd probably
35:04
be borrowing at a higher rate than the the market is likely to
35:07
return. And you know, the market
35:09
returns. I'm putting a little air quotes
35:10
here at 10%. But this year today, I think
35:13
we're actually down a little bit because, you know, we started
35:16
the war unexpectedly and now the market is down so far halfway to
35:21
March this year. And so if you were banking on
35:24
your 10% for three months, you haven't gotten 10%, you've got a
35:27
negative a couple percent or whatever it is today.
35:29
And so I would rarely really just that said, I've done this
35:34
once this one time when I bought the house, you know, you're
35:38
sitting behind me now I'm sitting in my house.
35:41
We had this really kind of common situation, which is we're
35:45
trying to sell our house, use the proceeds from the house to
35:48
buy a new house. But you always have this timing
35:50
issue, which is OK. I want to make sure I buy my new
35:53
house so I can move the stuff and then sell the old, old house
35:56
after I move. How do you, you know, bridge the
35:59
gap And there is a bunch of different options.
36:01
There are literally bridge loans for this reason.
36:03
You could do like a, a, a sale deal where they can't move in
36:07
until, you know, rent back from the owners of the new places,
36:10
like a bunch of different options that basically based on
36:12
the timing of our deals, what we landed on, what were we was, we
36:15
needed about 1,000,000 bucks for like 6 weeks.
36:18
And so I went to my Fidelity brokerage account and I wrote
36:22
$1,000,000 check to the mortgage company or you know, the, the
36:27
seller, whoever. And then for six weeks I sat
36:30
there like biting my nails hoping there wasn't some crazy
36:32
movement in the market until my old house sold.
36:36
And when, when, when my old house sold, I took that
36:37
1,000,000 bucks and put it right back into that line of credit.
36:40
So I was whole again. And it worked out fine.
36:43
You know, I paid, I think I paid like a couple $1000 in interest
36:48
over that time because there's a lot of money.
36:50
But you know, a couple 1000 bucks to 1,000,000 isn't that
36:52
bad. And it worked for me.
36:55
And I, you know, understood the risk.
36:57
But for me, that was like a very, very temporary thing where
37:01
just selling $1,000,000 all at once and realizing all the tax
37:05
implications and buying it back wouldn't have made as much sense
37:07
for me, I don't think. But for most situations, and
37:11
normally what I do in like 99% of the other situations is I
37:14
need money. I don't monkey with these lines
37:16
of credit. That's the only time I've done
37:17
it in my entire life. In fact, when I was looking at
37:20
those very, very short term temporary thing where I knew an
37:24
asset was selling and it was going to pay it back
37:25
immediately, that's why I did it.
37:27
For normal things, I'm like, oh, if I need a car, I just go sell
37:30
enough shares, take the money, go buy the car.
37:33
And for sure for a $10,000 expense, that's what I do there
37:36
too. So yeah.
37:38
All right, sometimes these things don't click until I'm
37:42
like reviewing the episode. I feel like this is one of them
37:44
where I'm going to listen back. I'm like OK, cuz I'm like, you
37:47
know, kind of I'm trying to do some producing back.
37:49
I'm taking screenshots and making notes so you know I I
37:52
want to listen to what you said, no?
37:54
Admittedly, this is but I mean, I, I think what you're saying,
37:56
John, is a great point because if you like are saying they'd be
37:59
like, I can't even wrap my brain around this margin line of
38:02
credit thing. You write that check, you pay
38:04
like that's when you start talking like that.
38:07
So if you're so much more likely to be going down a path that's
38:11
not right, you know, simpler usually means you make more
38:15
money and introducing complexity usually means you end up with
38:19
less money. And So what MO is talking about
38:22
is some really tricky complex thing to borrow money against
38:25
his shares without actually selling his shares.
38:27
Don't do that. If you've got $30,000 in VTSX,
38:31
go sell 10,000. Now you have $20,000 in VTSX and
38:35
$10,000 cash. Go spend the cash in the family
38:38
expense that you mentioned. And then with your income as
38:41
you're going to pay back the loan you're planning to pay
38:43
back, just pay back yourself and buy more shares and you're back
38:45
up to 30,000. And in that case, you're praying
38:48
for the market to crash because then you can buy back the shares
38:50
at a cheaper price and you'd actually be ahead, right,
38:52
without the loan, right? So the loan just introduce
38:55
introduces risk and the time frame and everything is so short
38:58
that what's going to actually be better off depends on future
39:02
knowledge of the market, which none of us have.
39:04
OK, I'm going to. I'm going to interject here
39:06
because this reminded me of a question we got from Jody who
39:11
hopefully be able to answer her full question, but it reminds me
39:14
that she said I missed. She said PS I missed a segment.
39:17
Explain it like I'm five since my goal now is teaching my young
39:19
adult and teen children about things such as IRA, 401K,
39:23
stocks, ETF expense ratio, has taxes and such.
39:25
I appreciate your clever and creative ways to help explain
39:27
these principles simply to my children who are just learning
39:30
for the first time. Maybe a segment called Exploit
39:33
it to a young teen adult. So like I think we're kind of
39:36
there with like the rest of our segments where like young teens
39:39
could wrap their heads around young teens and Jen.
39:42
Yeah, Anyway, that's. Jody.
39:44
Well, thanks, Jody. That's really nice.
39:45
I mean, you know, we got a lot. More complaints than?
39:48
I know like. For that one.
39:51
But I think everyone, I think everyone's right.
39:52
I think Joy's right. I think, I think if executed
39:54
well, that would have been a good segment.
39:55
I think that, you know, we've got to make better content and
39:58
we're trying. We're getting better every week.
40:00
And there's so many of you who say they look forward to the
40:02
Thursday episodes. I mean, I say so many, we joke
40:04
about the low listenership, but it's not bad.
40:05
It's like thousands. It's definitely the thousands.
40:07
That's if, if I was like sitting in front of the audience of
40:10
thousands right now, I would be like freaked the fuck out.
40:12
And so the fact that I'm sitting here like, you know.
40:16
Being self deprecating about how few people it is.
40:18
Like, I think it's amazing and I love all you Thursday listeners
40:21
out there. Woop woop.
40:23
OK, let's move on to scroll patrol.
40:30
Scroll Patrol. Let's get into it.
40:32
I found a video on the Internet. Jeremy's gonna watch it and
40:35
react in real time. You know the drill.
40:37
So we're going to open this together and let me know when
40:41
you're ready to watch. If you want to get rich, don't
40:44
buy the S&P. Buy a Ferrari.
40:46
Let me explain. Every time a supercar drives by,
40:49
there is a cranky buy and hold investor saying if they only
40:52
took that money and put in the S&P 500 for 10 years, it would
40:55
be worth millions. This investor, while he thinks
40:58
he sounds smart, is using the internet's most favorite piece
41:01
of fake data, the 12% annualized return in the S&P 500.
41:05
The problem with this? And even if we cherry picked,
41:07
the real return is more like 7%, and that is backward looking
41:11
into an environment that looks nothing like the one we're in
41:13
right now. Right now, multiples are trading
41:15
around 21 X. At high multiples, the forward
41:18
return is more like 2 to 3%. In real terms, that's 0 percent
41:23
or even negative. That means that the biggest myth
41:26
of getting rich from buy and hold is officially dead.
41:28
And you might as well just buy a Ferrari because the 458
41:31
speciality returned 14% last year alone, according to
41:34
Haggerty. In this scenario, at least you'd
41:36
have something cool to brag about.
41:38
All right, I have to admit something.
41:39
Am I really telling you to buy a Ferrari and assuming that the
41:41
Ferrari price will appreciate into Infinity?
41:43
Of course not. But what I am telling you is if
41:45
you expect to get rich from lazy buy and hold investing in an
41:49
environment with high multiples and enormous chaos in the
41:52
market, you are going to be sorely disappointed.
41:55
You will never have Ferrari money.
41:57
And I dare you, go ask the guy in the Ferrari how he got rich.
41:59
I can assure you he's not going to say buy and hold investing.
42:02
Gembi Ferrari. I was rolling my eyes a lot
42:05
during that. I didn't like a lot of that.
42:11
You know, he kind of does some very dishonest math.
42:17
And so, you know, it's like a lot of straw man arguments,
42:22
straw man arguments like a fake argument that's easily
42:24
disapprovable when no one's saying that.
42:25
So he's saying, first of all, he's saying the 12% S&P.
42:29
You know, I've heard that a couple times.
42:30
Most people, if you look at the numbers going back 100 years,
42:34
the annualized nominal return is about 10%.
42:38
Nominal means the actual amount of dollars you get.
42:40
So if you put in $10,000, you get a 10% return, you'll have
42:44
$11,000 because 11,000 is 10% more than 10,000.
42:49
And he's saying it's actually 7%, which is actually true
42:51
because when you look at the real return after calling for
42:54
inflation, then in real terms, you have about 7% more buying
42:59
power every year. So while the number of dollars
43:01
are going up, things are getting more expensive too.
43:04
And so you take your 10% return, you take 3% of inflation away,
43:07
you get about 7% over the last 100 years or so.
43:10
And you know, that part is mostly true.
43:13
He doesn't, he doesn't mention the inflation thing, but he kind
43:18
of uses it dishonestly shortly thereafter.
43:21
Then he goes in the part I really don't like, which is by
43:23
the way, I've never seen this before so I'm just going from
43:26
memory. But he goes in the part saying
43:28
OK, in this environment with the chaos in the market and the blah
43:31
blah blah, He says the forward-looking returns are two
43:33
to 3% thousand. Like my eyes roll through my
43:36
brains because no one knows the forward-looking returns, and
43:39
especially not this guy. And.
43:43
Why are you saying especially not this guy's?
43:45
Because his shirt. Because he's making this odd
43:46
videos with like a very tight shirt that's got like.
43:50
So tight. Four buns on buns.
43:53
I actually kind of nervously saw that my, my collar.
43:56
This was before I saw us. Like my, I'm wearing a little
43:58
button bun down. I added a bun to it earlier in
44:01
the episode when I was like, I was like, I think that's showing
44:03
too much chest. And I had a button and this
44:05
guy's like four or five buns down.
44:10
Yeah. And so he's saying the
44:12
forward-looking is 2 to 3% and then he's like, then he said
44:16
after inflation, that's more like 0%.
44:18
I was like, whoa, OK, you just took out inflation twice.
44:20
You took us from 12% to 7% because of inflation, Then you
44:22
took us from 2% to 3% because of inflation.
44:25
You can't keep deducting inflation every single time.
44:27
I think 2 to 3% is the real out forward-looking outlook.
44:31
That's accounting for inflation. So you can't take it, take it
44:34
twice. That said, if you go back five
44:37
years, you know what they said the forward-looking projection
44:39
was, they said it was like 2 to 3%.
44:40
And you go back 10 years, 2 to 3%, you go like 22 to 3.
44:43
Like they're always saying the forward-looking is 2 to 3%.
44:46
And maybe you know, every once in a while it is.
44:49
But again, over 100 years it is 10%, you know, and 7% after
44:55
inflation. And so you know, his whole thing
44:58
saying, OK, I know more than you do about what's going to happen
45:01
in the future and you're only going to get around 0% of real
45:04
growth. I'm like, no, that's, that's
45:06
absolute, absolute nonsense. Because you know, I know if you
45:11
own the companies of the world, if you own Walmart and FedEx and
45:15
Google and NVIDIA and Tesla and Microsoft and Amazon and you own
45:20
those for a long time, you're going to get a lot of wealth
45:22
from the dividends those companies payout and the
45:26
increase in share prices. Those companies grow and
45:27
innovate. Just assuming that all those
45:29
companies going to be worth 0 going forward is so silly.
45:33
That said, you know, if you ask someone in a Ferrari how they
45:38
bought the Ferrari, I kind of agree with them.
45:40
They're very unlikely to say buying old investing, You know,
45:43
they might say I'm in crippling debt and I can't afford this.
45:45
I think that's probably true for a lot of them.
45:47
You know, a lot of them might say I was a hugely successful
45:49
business or real estate investor.
45:51
Totally like I'm in favor of that too.
45:53
But I bet you, you know, most of those Ferrari drivers will say,
45:57
and you know, I do with much of my money now.
45:59
I buy and hold invest. I buy and hold in real estate.
46:02
I buy and hold the stock market. Of course, I didn't just get
46:05
there by putting 50 bucks a month in.
46:07
I like worked just like Jenna I did in college, just like we're
46:10
doing now. I worked and I was successful
46:11
and I made a lot of high income. And now with my wealth, it sits
46:15
there and index funds or mutual funds or whatever it is.
46:18
And so it's a combination of those things.
46:20
You know, I don't really know what he's suggesting.
46:22
Like, you know, I assume he's sells some business course or
46:26
something and maybe part it's fine.
46:27
But yeah, I found a lot, a lot of that to be very dishonest
46:30
because it's it's basically like this big straw man being like,
46:33
look, I took it from 12% down to 0%.
46:35
So this whole thing is worthless.
46:37
Do this other thing. Like I was like, whoa, whoa,
46:38
that was not real math. That's not what's going on.
46:42
And that that's not a fair assessment of like the argument
46:44
for buying hold investing. So yeah, I give, I've seen some
46:48
other videos about this guy makes he's kind of makes he's
46:50
like rich versus very rich videos that are funny.
46:53
But I haven't seen anything credible from him in terms of
46:56
like actual financial advice. Yeah.
46:59
So I give it AD. You know, it's not an F It's not
47:01
like, you know, I think there's some credibility to some of this
47:04
stuff like you need to have high income and stuff too.
47:06
But I give it AD. OK, All right.
47:10
D not, not totally failing. I'm mostly concerned about the
47:14
shirt. The shirt I give, I don't want
47:19
to pick on his appearance because like he looks pretty
47:21
jacked and he's got like a nice white collar shirt on like it's
47:25
just. To go one size I.
47:26
Want a different? Different.
47:27
Yeah, I want to. Yeah.
47:28
Maybe it was size up, maybe a couple buttons up.
47:30
He'd look really sharp. But you know, who am I to say
47:32
I'm not? This isn't personal.
47:36
Fashion Club. Yeah, Fashion Club, that's the
47:38
worst thing. You still.
47:39
Keep it Pfc. Yeah, maybe we should start Pfc
47:43
Personal Fashion Club. Absolutely not.
47:45
OK. All right, let's move on to
47:48
money. Money.
47:51
Jeremy had time today. I had time today.
47:54
If you have time, I am in the TikTok archives.
47:57
You posted a video of like 2021 about how much cash you should
48:02
keep at short. So we'll we'll play it now.
48:04
This is how much cash you should keep in each of these different
48:07
types of accounts. Anything above these reasonable
48:09
amounts should go towards investing, preferably in index
48:12
funds. That way you're not bearing too
48:14
much risk and you have some cash in case of emergency, and you're
48:16
also not bearing too little risk and you're putting your money to
48:19
work for you. Remember, you can build wealth
48:21
by following the 2 rules of Personal Finance Club.
48:24
Live below your means and invest early and often.
48:27
And this commenter says, but then how am I buying a house if
48:31
I invest all of it? Cool.
48:34
So just to just to recap, I like go over three different types of
48:38
accounts checking which is cash savings, which is cash and then
48:42
the rest invested. And the general message here is,
48:45
you know, you don't want too little cash such that if you
48:49
have, you know, rent comes due or you have some sort of
48:51
emergency, you are, you know, stuck in in fact, going back to
48:55
MO. I'm kind of curious, like, does
48:57
he have a cash emergency fund? You know, $10,000 is a small,
49:01
it's obviously a very big amount of money, but small enough that,
49:04
you know, I think most, you know, employed people should be
49:08
aiming to have at least that much in the emergency fund.
49:10
And that would be the first place to go before you even need
49:12
to go to your investments. And if, you know, if MO was
49:14
following this advice in that video, he would have three to
49:17
six months of his expenses in a, in a savings account, and that
49:20
would be enough to cover a $10,000 unexpected expense.
49:23
Then he doesn't need to borrow anything against his
49:25
investments. He can just pay it back, right?
49:29
And so the whole point is you don't want too little cash where
49:31
you're kind of getting pinched, but you don't want too much cash
49:34
either. Because if you have, let's say
49:35
your net worth is $200,000 and $180,000 of in cash, you're
49:40
missing a huge opportunity to grow because you're not getting
49:43
the great returns of the market. You're getting the, you know,
49:46
non existent returns of a savings account.
49:49
And this commentary very, you know, very fairly says, hey, but
49:52
if I'm buying a house, how do I buy a house if I invest all of
49:56
it? So if all my money, you know, if
49:57
my checking account has my monthly expenses, my savings
50:01
account has my emergency fund and everything else is invested,
50:04
where does my down payment go? And that's a really good point.
50:07
You know, honestly, that video, if it was more complete, it
50:11
probably should have said there's a third bucket here for
50:14
things called sinking funds. A sinking fund is basically
50:18
saving for a specific thing. So for example, it could be an
50:20
annual expense. So maybe Christmas presents.
50:23
Let's say you spend $600 a year on Christmas presents.
50:26
Instead of having that be an emergency every December, you
50:29
could put 50 bucks into your Christmas, you know, 50 bucks a
50:32
month into your Christmas sinking fund.
50:35
Then when Christmas comes around, you put in the last 50
50:38
bucks and you've got 60 bucks or 600 bucks.
50:40
And you don't need to like, you know, figure out where that
50:42
money's coming from. And you could have a bigger
50:45
sinking fund for like a home down payment.
50:47
And so for example, if you're trying to save up $30,000 for a
50:50
home payment and you put away $1000 a month, 30 months later,
50:54
you'll get there. And that wouldn't be in your
50:56
checking account. I mean, it could physically be
50:58
in there, but it wouldn't be, you know, what I was talking
51:00
about there. And it could physically be in
51:01
your savings account, but it wouldn't be part of your
51:04
emergency fund. It'd be this other additional
51:05
cash. And I really do believe that
51:09
money you plan to spend in the short term future, which is
51:12
within a few years, that's all short term, should be saved in
51:16
cash, you know, So for sure you could just like I suggested, MO
51:21
go back and sell some of your investments and buy a home.
51:23
That'd be perfectly reasonable depending on your on your
51:26
situation. But if you're in like the saving
51:29
for a down payment mode, I would be putting into cash in a third
51:33
bucket. And so I think this commenter is
51:35
right to point that out. You know, by the way, it's very
51:38
hard to make a what was this 32nd TikTok and, you know, fully
51:43
explain all personal finance. And so there's always, you know,
51:47
what abouts that you can critique and this come to made a
51:50
good one. But yeah, I would say, hey, put
51:52
that in a cash in the savings savings account or go to your
51:56
brokerage account because you can always sell those shares and
52:00
use them to buy a house if you want.
52:02
Nice, I'll have to say your videos have gotten a lot better,
52:05
but I did like the song. Yeah, no, it's very cringe
52:08
looking at my 2020 era. You look so little in the bottom
52:11
of the video and then the music's like the 70s music so.
52:15
Cute. I will say I hustled back then.
52:16
I was, I was like TikTok was like this brand new thing or so
52:20
like nothing else to me. I was like stop.
52:21
Going back there. Yeah, I was like, oh, I'm doing
52:23
like it was actually me and Vivi back then.
52:25
We were like, all right, I'm doing 4A day.
52:27
So I was like, I would just film like 30 in a day and have her
52:30
edit them. And we were like, cranking out
52:31
like, you know, once a week we'd film 30 videos as kind of
52:34
intense. Well I thought I assumed when I
52:37
scrolled back that far that it would be everything would be
52:39
from like 2023 to 2024 and you just like uploaded old videos.
52:43
But I was like, wow, he was posting in 2021.
52:46
No, I I that was that was when I was like trying on TikTok.
52:49
Now I just, yeah, I'm so bad at social media.
52:52
We don't. Give yourself a break.
52:54
I think other people with our kind of follower comments are
52:57
like so much more on the ball and I just kind of, I'm very
53:00
haphazard about it these days at least.
53:03
It's all right. You're doing great.
53:06
We deliver a podcast every Thursday, don't we?
53:08
We do can I read? I know this is a long episode
53:11
but can I read 1? Nice comment that we got as
53:13
well. Yes, and if you want your
53:15
comment read or you want your review read, go leave us
53:18
comments and reviews and maybe we'll have enough people where
53:21
some of them will statistically die in a fiery car crash
53:24
listening to our podcast. I mean, I don't want that to
53:27
happen, but you know, eventually it's going to happen if like.
53:29
Physically, that would be a good thing for us because.
53:31
Well, it would be a bad thing for everyone involved, but I'm
53:33
just saying if every single person in the US was listening
53:35
to our podcast and then there's a car crash, right?
53:38
We can't stop car crashes. That's those have been going on
53:41
since all of cars so. Bleak.
53:43
So I'm going to flip this narrative a little bit.
53:45
This is from Claudia, who says hi, Jen and you're in
53:48
parentheses and Jeremy. So I'm actually the main event
53:52
here. Thank you.
53:52
It's probably because I'm in the inbox.
53:55
I've been meaning to send this message.
53:56
I've been an avid listener of the show, truly enjoy the
53:58
content, the banter, the jokes and side talk, period.
54:02
Shout out to me. I hope you guys do earn an award
54:06
next year lol. You both deserve it.
54:08
So many more positive things to say but I'll keep it short and
54:10
sweet. Look forward to many more
54:12
episodes this year. I thought that was really.
54:13
That's crazy. That's so nice.
54:15
Who? Who said that was?
54:16
Claudia. Claudia, thank you.
54:18
Claudia. That's really nice.
54:19
That warms my heart. I actually listen to our show
54:21
and like every once in a while there's a moment I'm like, OK,
54:24
that was kind of good. And there's lots of moments.
54:27
I'm like, my God, we need to get better.
54:29
But we're trying. We're trying to do except keep
54:32
plowing episodes. But yeah, that's super nice.
54:34
That's really nice that you. Thanks, Claudia.
54:36
I mean, I think it's to like write to a podcast and like just
54:40
voluntarily give nice feedback is like so incredibly nice.
54:43
I mean, how easy just to like go through your day without doing
54:47
that like I do right to my podcast.
54:50
I have one favorite podcast that I will call in cuz they do
54:53
weekly feedback episodes. So I'll call in, yeah.
54:56
Nice. Cuz I just love them so much.
54:58
So I get it. We'll give us the rules so we
55:00
can get out of here. Yeah, I know that was a lot.
55:04
That's a long one. But if you want to build wealth,
55:06
all you got to do is follow the 2 rules of Personal Finance
55:08
Club. Rule #1 live below your means
55:11
and rule #2 invest early and often.
55:14
See you next week. The personal finance club show
55:16
is produced by Jeremy Schneider and Jen Wendia, music by Essa
55:19
Balu and Homie. Send your questions to podcast
55:22
at personalfinanceclub.com. The Personal Finance Club show
55:25
is Co hosted by Jeremy Schneider who is a co-owner of Nectarine
55:29
and SEC Registered Investment Advisor.
55:31
The views expressed on this show are those of the hosts and
55:34
guests and do not necessarily reflect the views of Nectarine.
55:37
Please refer to hellonectarine.com for all
55:40
relevant disclosures. This podcast is for
55:42
informational and educational purposes only and should not be
55:45
construed as personalized investment advice or a
55:48
solicitation to buy or sell any security.
55:51
The listeners should consult their own financial, legal or
55:53
tax professionals for advice