Latest / The Personal Finance Club Show / Best Index Fund, Stock Picking, and Hacking the Lottery | Ep 4

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Best Index Fund, Stock Picking, and Hacking the Lottery | Ep 4 · The Personal Finance Club Show

0:15
Welcome back to the Personal Finance Club show.
0:18
Hey, Jen. What's up, Jeremy?
0:20
So I just got lunch on the way to do this recording.
0:25
And in San Diego, Pacific Beach, near where I live, where the
0:28
office is, a new Jimmy John's opened up.
0:31
And Jimmy John's holds a special place in my heart.
0:33
Not sponsored, by the way, but nothing is sponsored.
0:37
I don't know why I keep needing to needing to give that that
0:40
caveat. Yeah, I know It's like we're
0:41
just swimming in sponsorships over here.
0:43
But yeah, in college, probably like 50% of the calories I
0:47
consumed were from Jimmy John's. It was just like cheap Subs,
0:50
fast. You like run in, you run out.
0:52
I'm on my bike riding to campus. You like 2 minutes, you can get
0:56
a sub and there's like 5 bucks and then like with chips and a
1:00
pickle is like 7 bucks or something like that.
1:02
And so I did this on the way into the office because there's
1:05
a new Jimmy John's that just opened up.
1:06
I went to school in Michigan. I'm in Southern California now,
1:10
like Jimmy John's over the past 20 years has finally like made
1:13
its way across the coast. And I was like looking forward
1:16
to some like nostalgic Jimmy John's Subs like the my old
1:19
college day. So I knew the menu, I knew how
1:21
to order. I like ordered the sub and I
1:22
went to pay and things were a little different.
1:24
First asked me the whole it's going to ask you a question.
1:27
I was like, I know a question it's going to ask.
1:28
You need to be all coy about. It's going to you're going to
1:30
ask for a tip. And that thing used to happen.
1:32
You used to just pay and then I was like expected to be like 7
1:35
bucks because I just was like living in this nostalgic memory
1:38
of these $7.00 combo meals from college.
1:41
And then the price came up and it was like 1850.
1:43
And I was like, oh, it like shocked me back to, you know,
1:47
2025 Southern California. I'm like, Oh yeah, Tip and Lily
1:52
for the first time. I looked at the many parts.
1:54
I was like, oh, it's like $12.00.
1:55
We used to be 5 is $12.00. And then like the pickle, which
1:58
used to be I think just free is $2.00 and the chips are $3 was a
2:02
tip or whatever. It is pretty.
2:04
Yeah. Pretty wild.
2:05
Different times than college. I'm also getting old, so no.
2:10
You never, never. I know it's my Gandalf Gray
2:15
beard is is glinting against the camera.
2:19
So that that was a that showed me a little bit of the passage
2:21
of time. So I want to ask, do you have an
2:23
early money memory or do you remember your earliest money
2:26
memory? For sure.
2:28
I'd I'd say my first money memory was my brother had a
2:33
paper route when we were, I was born in Massachusetts.
2:36
I was there till I was 8 and we lived in apartments and my
2:39
brother had a paper route where he got like I'm sure it was less
2:44
than a dollar to like probably give papers to two floors.
2:48
And I think he gave me like at least $0.15 of that dollar.
2:52
Really. Really.
2:53
Case agents. I don't know if that's like
2:55
indicative of my personality. I mean, my, I have a great older
2:58
brother and he's always sharing with me.
3:00
So it was one of the situations where like he got a Teenage
3:03
Mutant Ninja Turtles bike, I had to get one, you know, like I had
3:06
to get gifts on his birthday. So my first money memory is my
3:11
brother sharing his salary with me and I, I gave papers to like
3:14
2 doors. So I don't think the math works
3:16
out, but that's nice. He was very sweet.
3:19
So that's probably my earliest money memory.
3:21
Did you find that to be a lot of money?
3:24
Like what was what was your like feeling about it at the time?
3:27
I mean, I was probably 7, so I don't have a lot of feelings
3:31
about it, but I think I just wanted to be included at really
3:34
just like it was about, it was less about the money and more
3:36
about the inclusion of it all and be like, if he's making
3:39
money, I'm making money. You know what I mean?
3:40
Like when he, I remember, I don't remember this, but my mom
3:43
said when he went to school, he was learning to read and he
3:46
would bring books home and I'd be like, he's not going to learn
3:48
how to read without me. So it was more like the
3:50
inclusion of it. So I would like start to read
3:52
before I went to school. So I don't know if I had
3:54
feelings specifically about money, but I was happy to be
3:58
included. It was agent.
4:00
You get 15% for not doing much work.
4:02
I think it was a more of a bully than an agent, but yeah.
4:05
Yeah, maybe it's organized crime.
4:08
You know, it'd be a terrible thing if something happened to
4:10
your paper. Route it.
4:12
Was mafia vibes for sure. Give Jen 15 cents.
4:17
I I distinctly remember being like young, probably 5-6, like
4:23
an age where my parents put me to bed and I didn't want to go
4:27
to bed. And I would sometimes like sneak
4:29
out of my bedroom because I wasn't tired and, and we had
4:32
stairs in our house and I could like, I'd like be at the top of
4:35
the stairs, like listening down to the kitchen below.
4:37
And I remember my parents would always talk about four O 1 KS.
4:41
They're like, oh, the four O 1K this, the four O 1K that, which
4:44
at the time sounded like Chinese to me.
4:46
I was like, what, you know, what the heck is this thing?
4:49
And I'm and my memory of the time, my feeling was if I ever
4:53
talk about four O 1 KS and that means I'm super old.
4:58
It's like what an old person thing to talk about?
5:00
What a boring old person thing to talk about.
5:01
I don't know, I don't understand it.
5:02
I don't know what it is. And I honestly feel like a lot
5:04
of adults probably still feel that way.
5:06
But but now Fast forward to me being an old person and I
5:10
literally talk about 401 KS like every single day of my life.
5:13
So I don't know, maybe that was like a I willed it into
5:17
existence or jinxed it into existence or something, because
5:20
now I talk about this boring topic money, but we try to make
5:22
it fun on the person that finds me show.
5:25
Your first money memory being 4O1K's and mine being like
5:28
pennies. That's wild.
5:31
I think yours is probably more typical.
5:33
My memory was like not even understanding it.
5:35
But yeah, definitely a weird weird.
5:37
Memory. OK.
5:38
Well, we have a special guest star for our first segment
5:42
today, don't we? Yes.
5:44
What is our first segment? It is explain it like I'm 5.
5:52
This is so great. There's always complex topics.
5:55
And yes, we have a special guest star.
5:56
So what are we talking about today?
5:58
OK, so let's go all the way back to the basics and building
6:02
blocks of personal finance club to a question I have a feeling
6:05
you get quite a lot. What is the best index fund?
6:11
What is the best index fund and can you explain the answer like
6:15
I'm 5 or maybe even like I'm 4? So that adorable voice you just
6:20
heard was my son Mateo who is 4. I made him a repeat after me to
6:25
get him to say that because he does not know what an index fund
6:27
is. But I have heard some feedback
6:30
that the explain like I'm five section is still too
6:33
complicated. So I'm going to try to really
6:35
keep it simple. And so to understand what an
6:38
index fund is, you have to understand what a stock is.
6:41
A stock is buying a piece of a company.
6:44
And so imagine if you go and buy a bottle of Coke, there's a Coke
6:49
company that you know, produces it, ships it, bottles it,
6:53
markets it. They they make Coke and they're
6:56
owners of the Coke company. Not one person doesn't own the
6:58
entire company. It's owned by lots of people and
7:00
it's tracked by shares, shares in the company.
7:04
And so you can buy a share of Coke and you can basically buy a
7:07
share of basically any company. You've heard of any of these big
7:11
companies are generally called publicly traded companies, which
7:14
means you can buy them as a member of the public as you
7:17
could buy Coke, you could buy Nike, you could buy Home Depot,
7:20
all these stores you see, you can buy shares of the company.
7:23
And so it begs this question, which shares do you buy?
7:28
Which companies do you buy? And I'm going to spare you the
7:31
entire reasoning, but the the best answer in my opinion, is to
7:34
buy all the companies. Instead of picking and choosing
7:37
and guessing the companies, you buy all of them in what's called
7:39
an index fund. The next index fund is basically
7:42
like a big basket. So if you were going to go to
7:46
the grocery store and imagine that every item on the shelf,
7:50
instead of being the item, it's a share of the company that
7:54
makes items. So instead of buying coke, you
7:55
could buy a share of coke. Instead of buying Campbell's
7:57
soup, you buy a share of Campbell's soup, etcetera.
8:00
You can put everything in the entire grocery store into your
8:02
one basket. That's an index fund.
8:04
It's buying all the companies that make all the products and
8:08
services of the world. When you buy an index fund,
8:10
you're basically guaranteeing yourself your fair share of all
8:14
the market growth of the growth of all these companies.
8:17
And so the question that we are when I, when I give give that
8:20
short pitch about what is an index fund, I often get a
8:23
question like Mateo asks which is, OK, so what's the best index
8:26
fund? And the way I like to picture it
8:30
is like, let's say you go back to the grocery store and you buy
8:33
you buy your Coke, you buy your Campbell's soup, you buy Kraft
8:36
Mac and cheese. That questions kind of like
8:38
saying, what's the best grocery store from which to buy these
8:42
items? And the answer is it doesn't
8:43
really matter. Everyone's going to have Coke,
8:46
everyone's going to have Campbell's, everyone's going to
8:48
have crafts. And so it doesn't matter which
8:52
brand if whether you go to a Safeway or a Kroger or an
8:55
Albertson's or a Vaughn's. I don't know if these grocery
8:57
stores make sense to you because depending on where you live in
8:59
the country, they all have different names, but they're all
9:01
kind of owned by the same people, I think.
9:02
I didn't know you would know Kroger.
9:03
That's that's East Coast. Kroger is Michigan.
9:07
That's that's my OG Michigan grocery store, Yeah.
9:10
Kroger's Ralph's out here. I see sometimes the labels.
9:13
Anyway, go ahead. And a little fun fact, you can
9:16
take your Kroger card and you can use it at like Safeway, at
9:19
Ralph's, I think even at Vaughn's.
9:20
It's like the same, like the same company has this rebranded
9:23
all these different like grocery stores.
9:26
Don't quote me an exact yeah, but yeah.
9:29
Or you can type in. I just type in a phone number
9:31
and you can type in Jenny's phone number 867-5309 and then
9:37
are you calling? Me, Jenny.
9:38
Now hold up. OK, got you.
9:39
Jenny, Jenny I. Got you, Jenny.
9:41
Jenny. Yeah, Yeah.
9:43
Yeah, that's a music reference, Jen.
9:45
That's my that's my first and last music reference on this.
9:47
Show how do. You a one hit wonder from 1984.
9:52
That's that's how current I am. Amazing.
9:55
So anyway to answer the question what's the best index fund?
9:58
The answer is it doesn't matter if you go to any of these
10:01
different grocery stores, you're going to get all the same
10:03
groceries. And in fact, I'll show a chart
10:05
on the screen right here. I took the, you know, the 10 or
10:08
so most popular index funds in the US and they're, they're
10:11
pretty different from each other.
10:12
So in this list is VOOITOTVTIVTSAXIVVVFINX.
10:20
Like you might recognize some of those ticker symbols, you might
10:22
not, but they differ a lot because some of them track 500
10:25
companies, some of them track 3000 companies, some of them are
10:29
ETFs, some of them are mutual funds.
10:31
And this is kind of the confusing landscape which leads
10:34
to this question, what's the best one?
10:36
And when you chart them all on top of each other, John, can you
10:38
tell me what that looks like? Are you looking at the chart
10:40
right now? They're on top of each other.
10:42
It looks like a single line. Yeah, they're all on top of each
10:44
other. You know, if you like squint,
10:46
you can kind of see some differences like over, you know,
10:48
the course of ten years, which might just have to do with like
10:52
the fees that they charge or maybe if they're, you know,
10:55
slightly bigger or smaller companies.
10:57
But because they track a bigger or smaller index.
11:00
But basically any index fund that's tracking the US stock
11:03
market is going to perform about the same.
11:05
And so when choosing the best one, it's not really about one's
11:10
going to perform better than another.
11:11
It's just picking one that trades free with your brokerage.
11:14
So you wouldn't want to buy a Vanguard mutual fund in a
11:17
Fidelity account because you'll get hit with a transactional
11:20
fee. So you want to trade free, no
11:22
transaction fees in the US. All ETFs trade free with all
11:25
brokerages. A little bit confusing.
11:27
We'll break. We'll jump on the ETF versus
11:29
mutual funds on another episode. But yeah, make sure it trades
11:31
free or through your brokerage and just make sure it's a broad
11:37
market, low fee index fund. You know that you can look up
11:39
the expense ratio associated with it and should be around .2%
11:43
or lower. You know, anything below .2% I
11:46
would say is in the good range. And a lot of these are like
11:48
point O 3%. It doesn't really matter when
11:50
you got low if it's point O3 or point O 5, that's not going to
11:53
make much of a difference in your life.
11:55
And that's it. So no, best index fund, just buy
11:58
one that is the broad market and stick with it for the long term.
12:02
So I don't know, it's really hard to explain.
12:05
He's like I'm five. Well, maybe Matteo's four has
12:08
inspired us. How much of that do you think
12:12
Matteo would understand? None, but he's 4.
12:16
He's 4. In your defense, he's four.
12:17
OK, he. Can count to.
12:20
Yeah, he can count to, you know, at least to 20.
12:23
And then from there on it kind of gets a little bit chaotic,
12:26
but there's a lot of right numbers in there.
12:28
But yeah, you got, you kind of got to have counting down before
12:30
you can get to index fund I think.
12:32
Yeah, you're right. OK, Well, I, I I'm proud of you
12:35
for trying. We'll keep simplifying as much
12:36
as we can. Or you will.
12:38
You might have. Understood.
12:38
The grocery store thing that you know, putting in groceries and
12:41
baskets, that's kind of like good for a 5 year old.
12:44
Buy all the groceries. OK, we'll ask him what he
12:47
thinks. OK, let's get into our next
12:50
segment. Can I ask a dumb one?
12:54
It's a dumb question. Or are you asking a dumb person?
12:57
We're about to find out. OK, now before we even get into
13:00
this, actually what I need to say is that Y alls questions are
13:04
too long. We're so happy that you're in
13:07
the inbox, but Y alls questions are too long.
13:09
So we're editing. We're so grateful that you're
13:11
popping in there, but we are editing them down.
13:13
Not everything's included, but try and keep it to something
13:16
that you'd want to hear on the podcast.
13:18
And thank you, Colin for your questions.
13:20
So Colin asks, my name is Colin and I'm 24.
13:24
I started investing last December and want to be set up
13:27
for long term investing but got way more interested in it than I
13:31
thought I would. So I always enjoy trying to buy
13:34
low on big companies for fast growth.
13:37
Right now my plan is to keep around 65% in FZROX and pair it
13:43
with other funds for short term like FS ELX for semiconductors
13:48
and FS ENX for energy. I would also like a core of a
13:52
few big companies such as Amazon, Apple, Tesla, and Disney
13:55
currently and then I have another handful of positions
13:59
with less invested like Starbucks, Lulu, and Celsius.
14:03
I keep having the same issue where I want to redistribute my
14:05
money into either other companies when their price falls
14:08
or more into my funds and feel like I have too many positions,
14:12
15 total. What do you think of my choice
14:14
of funds? Are there any funds you'd
14:16
recommend for holding long term? And how can I balance the long
14:20
term growth with some of the fun money since I'm young and can
14:23
afford it at this time without having too many positions?
14:26
So that was us editing the question.
14:28
That was about half the length of the original question.
14:30
And even as you're reading, I was like, oh, we should have cut
14:32
it more, but here we are. All right, Colin, this is my pep
14:35
talk to 24 year olds. And, you know, broad strokes, by
14:38
the way, you're doing great. You're very young, you're buying
14:43
very wise things, index funds and stocks you plan to invest
14:46
for the long term, you know, grade on the A to F scale.
14:49
I'd give you like, you know, maybe AB plus or a minus.
14:52
Right now you're doing very well and that's the most important
14:57
message here. The second most important
14:59
message is the fine tuning message.
15:00
And to describe kind of your strategy, I like to think of all
15:05
the stocks like a big pie chart. So remember in the previous
15:08
segment, we talked about the groceries.
15:10
Imagine every single brand in the big pie chart.
15:12
And so right now, you know, one of the biggest companies on
15:15
earth is Apple, Nvidia's up there, Microsoft.
15:18
Those are like the biggest pie slices.
15:21
And as you get smaller and smaller, the pie slices get
15:24
smaller and smaller. You can buy the entire pie.
15:27
And 1st, let's talk to us about U.S. stocks because that's often
15:30
how these funds are organized. But the US stock market has this
15:34
pie chart, right? Has the entire pie.
15:37
When you buy FZROX, that is the entire pie.
15:42
Everything else you've listed is just slicing the pie in
15:46
different ways. Like you could take a slice from
15:48
the middle, a slice across the. You could take individual pieces
15:51
like an individual slice is like the company's.
15:53
You could just make big cuts down the middle, up and down
15:56
circles, squares. And so you've bought the entire
15:58
pie. And then in my kind of a little
16:02
bit dismissive opinion, you're arbitrarily just cutting through
16:06
the pie and buying more of the same pie in different amounts,
16:08
in different quantities. And so by your entire strategy,
16:12
you're not becoming more diversified.
16:14
You're just overweighting certain stocks or certain
16:17
sectors. So certain stocks like
16:19
Starbucks, Lulu and Celsius or certain sectors like
16:22
semiconductors and energy, but all of those slices are pieces
16:25
of the pie, of the pie you already own.
16:27
And this is just some dude yapping gums on a podcast.
16:31
But you can look at study after study after study after study
16:34
that shows experts who pick and choose different ways to cut the
16:39
pie over time consistently lose to the entire pie.
16:44
You know, it's cool what you're doing.
16:45
You know, you're 24, you're learning about the stuff.
16:47
It's interesting. You want to buy low fast growth.
16:49
That's exciting. But the very humble, wise,
16:52
experienced, tough pill to swallow is that your strategy is
16:56
very, very unlikely to beat FZROX in the long term.
17:00
You'll have some that beat it, I promise you that.
17:03
You know, if you buy 15 different positions, some will
17:05
be above, some, some will be below.
17:07
But net of a very careful counting of all your gains and
17:10
losses and all the fees associated with trading, bid ask
17:13
spreads, cash drag, all this stuff that can actually slow
17:17
your growth down, your one index fund will outperform.
17:21
And so that said, what do you do?
17:23
What I like to do is with 90% of My Portfolio, I would buy a
17:26
single index fund with 10%, go nuts.
17:30
And in the 10%, I can't tell you what to do.
17:32
I don't know if Disney or Apple or Tesla or Amazon are going to
17:37
do better than semiconductors or energy.
17:39
I can't. If I knew the answers to those
17:41
questions, I, I'm like, you know, kind of rich.
17:43
I'm like poor rich, but I would be like rich rich.
17:46
I'd be like billionaire rich, super yacht rich, because anyone
17:49
who knows the future and can predictably tell you which
17:52
sectors, which stocks are going to do better, they could they
17:55
could trade that information and become a billionaire in a
17:57
relatively short period of time. And the fact that people who are
18:01
talking about this generally aren't billionaires is kind of
18:03
like The Dirty little secret of Wall Street, which is nobody
18:06
knows what the future holds because the market's very
18:08
efficient. And so for you, for you, Colin,
18:11
I'd say, hey, take it for what it is.
18:13
This is just some dude that's got 20 years on you yapping his
18:16
gums. But what you're attempting is
18:18
very, very difficult. And you're actually going to end
18:20
up with less money for having done it.
18:23
And it's a lot more work. You know, if you want to that's
18:25
cool with your 10%, like I said, go nuts.
18:27
But 90%, that said, everything we've talked about thus far is
18:31
AUS stock. I assume you live in the US
18:34
because you're only buying U.S. stocks.
18:35
But as you may know, there are other countries on planet Earth
18:38
such as China, France, Germany, Italy, Japan, Australia, Brazil,
18:45
just to name a few. But these companies, these
18:47
countries have companies too. And often they're really great
18:50
companies. And your portfolio is like the
18:53
perfect encapsulation of a 24 year old's portfolio who only
18:57
has a certain living memory of the stock market.
18:59
And your living memory of the stock market, you know, maybe it
19:02
came online when you're 14 or something and it's been 10
19:05
years, has exclusively existed during US outperformance.
19:10
And so I would accuse you, Colin, of what's called chasing
19:14
past performance by buying semiconductors, Amazon, Apple,
19:19
Tesla, Disney, you are buying what did well the last 10 years,
19:24
but what did well the last 10 years is very different from
19:27
what's going to do well the next 10 years.
19:29
And almost always those two things are not the same.
19:32
If you look at like the winners of any decade, they're rarely
19:35
the same 2 decades in a row. And so when you chase past
19:39
performance, you go, you go over buy, you know, you put more, you
19:44
buy more slices of the pie that have done well the last 10
19:47
years. You're just asking to
19:49
underperform the next 10 years. What you should really be doing
19:52
is buying stocks. No one's talking about that.
19:54
No one's heard of that, that didn't do well recently that are
19:57
about to do well. But no one knows who those are.
20:00
And it's not as fun as just buying NVIDIA because it has
20:03
crushed last 10 years, right? And so and it also performs to
20:07
the global markets. So with the US market, it has
20:11
outperformed non-us stocks over the last 10 years.
20:14
But if you go back longer, fifty 60-70 years, it's more like a
20:17
pendulum. A decade the US outperforms, A
20:20
decade the rest of the the world outperforms.
20:22
And as weighted by the size of the economies or the size of the
20:27
market cap of the the value of the stocks, it's not 5050.
20:31
About half is in the US or half is in North America and half is
20:34
the rest of the world. And so when you are not buying
20:37
that half of the pie and your entire slices is it like 1/2 of
20:41
the global pie, you're missing out on what might be the best
20:44
performing stocks of the next 10 years.
20:47
And so yeah, my general advice is keep it simpler.
20:50
I agree 15 is too many, but it for your 90% of your portfolio,
20:54
go buy, you know, probably 2 index funds.
20:56
FZROX is fine but you could also buy the international like VXUS
21:00
which is a the non-us ETF which trades free in all brokerages
21:05
and then with 10% go nuts. And I can't tell you to do there
21:08
'cause I don't know. Love it.
21:10
I love. What I love is that Mateo and
21:12
Colin had the same question and Collins got 20 years on Mateo.
21:14
So and Mateo was unprompted. He just asked that.
21:17
He just asked that at breakfast this morning, right?
21:20
He said, he said, where's baby Teddy and what's the best index
21:24
fund? These are the two pressing
21:25
issues in my life, right? Now that's what's on his mind.
21:28
Yes, amazing. All right, cool.
21:30
Let's move on to our next segment, Scroll Patrol.
21:37
Scroll Patrol. All right, this is the kind of
21:40
fun one. Why don't you go ahead and click
21:41
on that and let me know what you think.
21:44
So as always, I've never seen these before this exact moment.
21:47
This is like an actual legitimate reaction and
21:51
commentary I make on it. So it's always a little bit
21:53
terrifying because I don't know what I'm going to see.
21:55
And so let's let's see it. So me and my friend Muji got
21:58
some money and went around to a few different stores because we
22:01
heard about this thing called the stonk market.
22:03
The plan is to purchase $251 scratcher tickets to see if we
22:07
can become rich and successful. They don't need luck, they
22:15
bought out the whole thing. How did you tell it was a
22:20
dollar? We have made it to our final
22:22
destination. How much money do we have, $69?
22:26
Nice, that's what I'm talking about.
22:28
How many $1.00 scratchers can? You buy with. $69 The mission
22:36
has been complete. We've got all the scratchers and
22:38
we're going to take them back to the house.
22:39
So let's do it. Let's get to scratching.
22:48
A. 192 dollars, Damn, we made a bad investment.
22:53
We made, we made a bad investment.
22:55
You know, you win some, you lose some.
22:57
OK, first of all, love those. Love those two guys.
23:00
Very fun, high energy, concentration.
23:03
No, never seen them before. I already I already love them.
23:06
Don't know who they are. I'm just saying.
23:07
I love the editing. Love it for them.
23:10
Yeah. And you know, as a, you know, as
23:13
a Internet video, it's very good.
23:16
You know, it's very interesting. And I think it, I think it
23:19
actually paints a very good mathematical lesson.
23:21
And so basically what they're saying is, hey, we're going to
23:24
go buy, take our 250 bucks, go buy 250 lottery tickets.
23:28
And then, you know, come on, we gotta hit one right?
23:30
And they turn end up with what was 190 or 160.
23:33
Dollars or something, 192 or something.
23:35
Like that 192 OK. And so, you know, people get a
23:39
math, don't buy the Lotto, don't play the Lotto because or at
23:42
least don't expect to win Lotto. If you want to play for
23:45
entertainment purposes, because it's kind of fun to dream for a
23:48
moment while you're scratching up your ticket, go for it.
23:50
Although the dollar, the dollar scratchers, I don't think
23:52
there's like a billion dollar jackpot.
23:54
I think you'd probably win 50 or 100 bucks or something, the
23:57
biggest jackpot. So but yeah, the lottery is a
24:03
money making endeavor for the, you know, state or local
24:06
governments that run it. And the way that they make money
24:09
is they, for every, you know, dollar that they take in, they
24:12
only pay out less than a dollar. It might be like 40 cents, 50
24:16
cents, $0.75. And they do that because they
24:18
print all the tickets. So if they print, you know, a
24:21
million, a million tickets that they're going to sell for
24:24
$1,000,000, the sum total of winnings on all those tickets is
24:28
less than a million, maybe 750,000.
24:30
And then they make $250,000 in profit.
24:32
And it's this kind of, it's like this poor math, poor man's game
24:36
that if you buy individual tickets, you're going to win
24:38
because over time you're not. In fact, what they did is almost
24:41
the worst thing you can do, which is they bought so many
24:43
tickets, they're kind of guaranteeing themselves the
24:45
average return, right? And there there have been a few
24:48
very rare exceptions in history. I think they've made like a
24:51
Netflix movie about someone that found out that like one state
24:54
lottery kind of did the math wrong.
24:56
And there's certain times where the, the, the odds favored the
24:59
buyers. And so they'd go and buy, you
25:00
know, 10s of thousands of dollars of tickets every time
25:03
that the the lottery entered the state.
25:05
There are also times where there's like the Mega Millions
25:07
jackpots where where it actually it becomes kind of
25:09
mathematically correct to buy tickets where your expected
25:13
value for buying a ticket, expected value is basically if
25:16
you put a dollar in, how many cents you expect to get back.
25:18
And usually it's well under a dollar, but sometimes it's over
25:21
a dollar. But even that for those huge
25:23
jackpots, if you split the jackpot, then then it goes back
25:27
below. And so there's there's really no
25:28
guarantee. But yeah, I'd say for content
25:30
creation, I give them an A for, and this is my new thing for
25:35
Scroll Patrol, I'm going to give a letter grade A through F based
25:39
on how? Breaking news.
25:41
Yeah, how good of an idea is this?
25:42
Like a plus is like 100% Pfc endorse.
25:46
This is a great way to build wealth and an F is like don't do
25:49
this. And you know I would give this
25:53
probably. I think I have to give an FI was
25:55
going to maybe say it's AD minus because it's fun and that that's
25:58
true. I think it could be fun, but
26:01
what fun isn't how you build wealth.
26:02
You know, if you want to have fun, you can go to the movies
26:04
and I would say going to the movies also as an F for building
26:07
wealth. It might be an might be a, an A
26:09
for how you want to spend your money.
26:10
And and that's true for lottery too.
26:12
But this is not a good way to build, to build wealth.
26:14
Don't don't play Lotto. And it, and it's really sad
26:17
because a Lotto if you look at Lotto players, it's not even
26:21
middle class or upper middle class or wealthy people playing
26:23
a Lotto. It's basically poor people.
26:25
It's broke people, people, people who are struggling to
26:27
make rent. And this is their, this, they
26:30
think this is their ticket out of there.
26:32
And if you add up all the money they spent a lot over the years.
26:35
And if they had put in an index fund, they could be, you know,
26:39
wealthy, like 100,000 million, whatever it is.
26:42
But instead they're just living in this like cycle of continued
26:45
poverty. So, yeah, I give it an F.
26:47
But I I think it's a cute video. OK, have you ever bought a
26:50
lottery ticket? Yes, you know, I think my
26:52
lifetime, my lifetime spending on Lotto is maybe under $50, you
26:59
know, probably under 30 if I'm trying to be more accurate.
27:03
But every once in a while when there's like a billion dollar
27:05
jackpot, I'll go buy like 1-2 dollar ticket and you know,
27:08
bring it home. And you know, there used to be
27:11
this, this website, I don't know if it still exists, but you
27:15
could like basically fill out your ticket or, you know, choose
27:21
your Mega Millions numbers or have it be random or whatever.
27:24
And then as fast as JavaScript. So it's like running on your
27:27
computer, but as fast as your computer could run the Lotto, it
27:31
would, it would start doing simulations as though you were
27:34
buying this ticket every single week.
27:36
And it just, you just like be zooming through time like
27:39
hundreds and thousands and 10s of and millions of years would
27:42
pass by and it'd show you, you're like cumulative winnings.
27:46
And you can just let that thing run overnight as fast as your
27:50
computer could possibly choose numbers and you still wouldn't
27:53
win. It's like, it's crazy, you know?
27:56
And so just having 1 ticket one time or even 1000 tickets one
27:59
time, the math is so mind bogglingly bad, It's really,
28:05
really hard to comprehend how unlikely are you to win.
28:07
And humans are just really bad at conceptualizing big numbers.
28:12
And so we, we are really good at stories and relative things.
28:16
And so we see one person win and they have relatively lot more
28:20
money than me and you think someone's got to win.
28:22
And so, you know, the chance is non zero and non zero starts to
28:26
sound like 1 or 1% or something like that.
28:28
But like no, it's not 1%, it's .000000 whatever percent.
28:33
And you can just as fast as your computer can run simulations,
28:36
you'll still never find the right number.
28:37
That's that's how bad it is. So maybe we need to go back to
28:40
giving it AD minus because it shows how bad of an idea it is
28:43
to buy a lottery ticket. Or just feelings and emotions?
28:48
But F is worse than D minus. I think it's an F.
28:50
Don't buy a lot, do it for fun like the.
28:52
Video The content itself is like doing a good job of showing us
28:55
what we shouldn't do. OK, I guess that's true,
28:57
although I guess that's how you. It turns out how you look at it.
29:00
That's true. Yeah.
29:00
I guess the I'd say the idea, their idea to build wealth F but
29:04
I'd say like yeah, I'd say the video I'd give an A, you know,
29:06
maybe a maybe AB for, you know, education, but not bad.
29:11
OK, cool. All right, let's move on to our
29:14
last segment of the episode. Jeremy had time today.
29:20
Today's comment was posted on your recent Instagram post about
29:24
term life insurance versus whole life insurance.
29:28
And one commenter said this chart doesn't account for
29:31
withdrawals in retirement or any market volatility.
29:34
Apparently crying laughing emoji.
29:37
Let's let's say that's the case though.
29:40
Now in life insurance defense, if this is truly the case, you
29:44
would have a massive taxable event at the time of death and
29:47
donate half your money to the government for fun.
29:50
Life insurance pays out tax free to your beneficiaries.
29:53
That's why you buy a permanent life insurance policy.
29:56
Lol, faulty reasoning. Oh this commenter he's having
30:02
he's he's laughing, he's laughing, he says lol and he's
30:05
got a laughing emoji. Good for him.
30:08
So this just for some context, this comment was on a post
30:12
comparing term life versus whole life.
30:14
And term life insurance is life insurance that expires after say
30:17
20 year term, 30 year term, something like that.
30:20
And whole life insurance, something that doesn't expire
30:22
where the the death benefit pays out no matter when you die, even
30:25
in old age, assuming you don't miss a payment and the policy
30:29
doesn't lapse. And you know, we've talked about
30:33
before, we'll talk about again, the complexities of life
30:35
insurance are potentially infinite.
30:37
But one critique that insurance salesman throughout there is
30:41
they say, hey, 98% of insurance of term insurance never pays
30:45
out. Why would you throw your money
30:47
away? And that why don't you buy whole
30:48
life insurance? And the answer is because whole
30:51
life insurance is so much more expensive that if you buy the
30:54
cheaper thing and invest the difference, you buy term, invest
30:58
the difference, you'll be strictly better off no matter
31:00
when you die. If you die during the term, you
31:02
get the whole payout plus all of your investments.
31:05
And then by a term ends, your investments have grown so much
31:08
that your payout will be more than the death benefit of the
31:11
whole life insurance. Or when I say your payout, but
31:13
your your wealth accumulated. And and this comment to who I, I
31:18
forget if I looked him up, but I can virtually guarantee I would
31:20
literally put money on it that he's an insurance salesman
31:22
because this is what insurance salesman do.
31:23
They basically post this like scare tactic misinformation to
31:27
back up their worldview that people should all be buying life
31:30
insurance as an investment. But he makes a few points and
31:32
I'm going to break him down right now.
31:33
He says this doesn't account for withdrawals in retirement.
31:36
I'm like, OK, first of all, that's nonsense because neither
31:39
of them account for withdrawals nor retirement.
31:41
You're not, you're not withdrawing from the whole life.
31:43
You're not withdrawing from the term.
31:44
This is talking about the death benefit, what the beneficiaries
31:47
get. And now I talk about whole life
31:50
or permanent life insurance or cash or life insurance as some
31:52
great retirement plan, but it's not so.
31:55
But again, this chart isn't showing that.
31:57
The second thing he says is this is this doesn't account for
31:59
market volatility, which is actually true.
32:02
So the, the line in this that you know, if you're looking at
32:05
it, you can see, but if you're just listening to it, I
32:07
basically draw a line of how your investments will grow.
32:09
And it's a smooth line going up exponentially.
32:12
And that's not how real investments grow.
32:13
Real investments would be bumpier, but it grows at about
32:16
that rate historically. And that's the trade off of
32:19
investing versus a safer to put money like a savings account,
32:24
right? And so if you had a savings
32:25
account, there would be no bumpiness.
32:27
But with investing, you get a higher projected return, you
32:30
know, 10% in this example. But you accept some volatility.
32:33
At the end of the day, if you if you die at 70, where this chart
32:36
ends, which is young, it could have gone longer.
32:38
But the, if you die later, the numbers get even crazier.
32:41
But let's say you die at 70 with the investing option, you end up
32:43
with about $2.4 million, whereas the whole life policy is only
32:48
500,000. And so you end up with about
32:50
five times more money investing the money rather than just
32:54
depending on the insurance company payout.
32:56
And so even accounting for volatility, there's never been a
32:58
period of, you know, 40 years where you're down 80%.
33:01
That doesn't exist. And so even the volatility that
33:04
doesn't make sense for him. That's that.
33:06
Those were his two best points. Then the points get really bad.
33:10
So he said, if this is truly the case, you'd have a massive
33:13
taxable event at the time of your death and donate half of
33:16
your mind to the government for fun.
33:18
LOL, crying emoji right face. And so he's saying, hey, if I go
33:23
and buy an index fund in a brokerage account and rack up
33:26
2.5 million and then I die, you're going to have a massive
33:29
taxable event, number one, and you're going to donate half your
33:31
mind to the government. So first of all, I want to talk
33:33
about the estate tax. And Jen, this is the, and I
33:37
don't think you know the question, this, the answer to
33:38
this, this is the trivia question I give everyone when
33:42
you die, and maybe you have heard this, and if you have,
33:44
then you're going to get it pretty close.
33:46
But when you die, there's an estate tax and the government
33:50
taxes your state, your estates, all the stuff you own, your,
33:53
your investments, your house, your cars, yada, yada, yada.
33:56
All the stuff you own is your estate.
33:57
And if your estate is worth over a certain dollar amount, the
34:00
estate tax kicks in under that dollar amount which is the
34:03
lifetime exemption. You owe $0.00 in estate tax.
34:07
So my question to you is what do you think the lifetime exemption
34:10
is? Like how much money can you give
34:12
to your beneficiaries to heirs to your children with 0 tax
34:15
before paying the estate tax? Now, I did take both of your
34:19
courses and this is in there so I, I don't remember the number,
34:23
but I know that it's super high, something that most people will
34:26
not achieve. I and I know it's millions.
34:28
I feel like it's like 12 million.
34:33
That's a really good guess and I think that's actually exactly
34:36
right as of like 2 years ago, but probably when you took the
34:39
course. But but it, it goes up every
34:41
year. And as of today, in 2025, the
34:43
lifetime exemption for the estate tax is 13.99 million and
34:47
that's for a single person. If you're married, actually
34:49
double S to 27.98 million. So that means if you're a
34:52
married couple, you can literally donate 28, not donate,
34:55
you can bequeath to your heirs $28 million and pay 0 in estate
35:01
tax. So this insurance salesman like
35:04
scare tactic that you're going to donate half of your money to
35:06
the government. The estate tax isn't half by the
35:08
way either, but you're going to donate half your money to your
35:10
government because because you have $2,000,000 in investment is
35:14
just straight up 100% fiction, lie, scare tactic, falsehood,
35:19
right? Then the other thing he said is
35:22
you have a massive taxable event.
35:24
And so I think what he's in saying is, I mean there's, you
35:27
know, that's partially, I don't know if he's talking about the
35:28
state tax or the capital gains tax.
35:30
Like let's say you invest, you get your investments grow to
35:33
$2.4 million. But because of that huge amount
35:37
of growth, probably 80 to 90% of its growth and only 10% to 10 to
35:42
20% its principle. So let's say you, you invested
35:45
$300,000 over the course of 40 years, it's grown to 2.8
35:49
million. If you as an alive person sell
35:52
it all on one single day and realize all that gain, you know,
35:55
capital gains on that, like $2.1 million of gains, right?
35:58
So most of the money you have to pay capital gains tax, which by
36:01
the way, caps out 20% for most people's 15%.
36:04
So it's not half, it's 15%, which means you're, you know,
36:08
you're $2.4 million will become like $2.2 million.
36:11
Not a crippling, you know, not half, not a crippling thing.
36:15
Obviously way more than the 500,000 that life insurance
36:18
would pay out, but still a tax. But here's what happens if you
36:21
die. If you die, your beneficiaries
36:23
enjoy a step up in basis. What that means is if you have
36:27
invested 300,000 and it grows to 2.4 million when your
36:32
beneficiaries, when your children, when your heirs get
36:35
that investment, their basis, what they paid goes from 300,000
36:40
to 2.4 million. Which means the day after you
36:43
die they could go to fidelity, click sell, sell $2.4 million of
36:47
your ETF and a taxable brokerage account and pay 0 in tax.
36:52
So this insurance salesman commenting who said you'd have a
36:56
massive massive taxable event. He obviously didn't specify but
37:00
I assume either meant from the capital gains and or the estate
37:04
tax. Both are 100% false in the US
37:08
tax code. Your kids will pay 0, 000 on
37:12
this 2.4 million investment to that they're inheriting.
37:15
So your net tax would literally be 0.
37:19
And so this comment kind of encapsulates why the insurance
37:25
salesman make my blood boil because they go and use these
37:29
crazy sales tax tactics using the complexity of the US tax
37:33
system, weaponizing it against young people who are making, you
37:36
know, investment choices, selling their products as
37:39
investments, which is which is a legal initiative to instead
37:42
pushing their whole life insurance.
37:44
Not a fan. I think this commentary is very
37:46
bad. If I was to give this commentary
37:48
grade F minus, you know, not a good comment in my opinion, is
37:55
there? F minus is it's a fail.
37:56
It's a fail man. Never.
37:58
I personally never seen the F in my life so wow, that's the
38:02
toughest you've gone on. Our Jeremy had time today.
38:06
Pity the. That was a bad comment.
38:08
That was a bad one. Yeah, OK, you really went off.
38:10
Love that. More of that.
38:12
If you have any scroll patrols, maybe not Jeremy had time today
38:15
because that probably means they're commenting negative
38:17
things on your post, but send them our way at podcast at
38:21
personalfinanceclub.com. That is all that we have time
38:24
for on today's show. We thank you for listening and
38:28
hope to see you again next week. And don't forget to follow the 2
38:31
rules of Personal Finance club. Rule #1 is to live below your
38:34
means and rule #2 is invest early and often.
38:38
The personal finance club show is produced by Jeremy Schneider
38:40
and Jed Mundia, music by Essa Balu and Homie.
38:44
Send your questions to podcast@personalfinanceclub.com.
38:48
The Personal Finance Club show is Co hosted by Jeremy Schneider
38:50
who is a co-owner of Nectarine and SEC Registered Investment
38:54
Advisor. The views expressed on this show
38:56
are those of the hosts and guests and do not necessarily
38:59
reflect the views of Nectarine. Please refer to
39:02
hellonectarine.com for all relevant disclosures.
39:05
This podcast is for informational and educational
39:07
purposes only and should not be construed as personalized
39:10
investment advice or a solicitation to buy or sell any
39:13
security. Listeners should consult their
39:16
own financial, legal or tax professionals for advice
39:18
specific to their situation.