Latest / The Personal Finance Club Show / Retire on $10,000? Lump Sum vs. Dollar Cost Averaging, and the 4% rule vs. the 3.5% rule | Ep 20

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Retire on $10,000? Lump Sum vs. Dollar Cost Averaging, and the 4% rule vs. the 3.5% rule | Ep 20 · The Personal Finance Club Show

0:00
Can you retire on $10,000 a year?
0:02
What's better, lump sum investing or dollar cost
0:05
averaging? And can a four year old be
0:07
trusted with $10 at a grocery store?
0:10
We're about to find out. Welcome back to the Personal
0:17
Finance Club show. Hey, Jen.
0:19
What's up, Jeremy? A lot.
0:21
Jen, are you a Redditor? Not really.
0:25
Do you have an account? I have an account but I just go
0:27
on there when I have a random question then no one answers it
0:30
and then I just leave. Yeah, interesting.
0:32
Oh, you ask a question no one answers.
0:34
It yeah, I have like I got a new keyboard and I it's, it's like a
0:37
Japanese keyboard. And I asked, I asked a very
0:39
specific question about it and it still has zero.
0:40
What do you call them? Up votes or whatever?
0:43
Oh yeah, up votes. Yeah, I've heard actually a
0:46
strategy with Reddit, which is if you want your question
0:49
answered, don't ask a question, just give advice that's wrong.
0:54
And people will be so much more likely to come and correct you.
0:57
And then they will like out like no one wants to help anyone.
1:00
They just want to prove other people are wrong.
1:01
And so just go, go recreate the post.
1:03
But right as like this is, This is why the keyboard does XY or
1:06
Z. And I'm like, that's not how it
1:07
works. They're gonna, they're gonna,
1:09
they're gonna actually help. You great advice.
1:11
OK, do you have a Reddit? I, I thought I was like a late
1:16
adopter to Reddit, but now I looked at it, I've been a
1:18
redditor for I think 19 years dating back to I think 2006 or 7
1:23
or whatever that was. So I think now, you know, I'm
1:27
probably older than most. Of redditors 'cause they're not.
1:30
Teenagers. But last night I did something.
1:33
I created a subreddit. Tell me what that is.
1:36
Of our very own What's a subreddit or which subreddit?
1:39
What's a subreddit? OK, so so Reddit is like
1:43
basically there's like online Internet forum where people are
1:45
very mean to each other, but then there's like different
1:47
categories. And so there's one that's like
1:50
AMA for Ask Me Anything or there's one that's R slash.
1:54
Videos. It's just like a category.
1:56
Yeah, it's like a category. It's like a subreddit.
1:58
I. Don't know that's what they were
1:58
called. Yeah, R slash news, R slash
2:01
politics, whatever. And then there's this like genre
2:04
of subreddit called Ask a Blank. So you could like ask a doctor,
2:10
ask a dentist. And then the idea there is if
2:13
you could go to the subreddit, post a question, ask it, and
2:16
then then have real doctors and potentially answer your question
2:19
there, you know, is this a good idea for society?
2:21
I don't know, but it's the way the internet's going.
2:24
So I created R slash ask a financial advisor because so
2:30
often Reddit, I hear this advice.
2:32
Oh, go talk, you know, go talk to a financial advisor, which
2:34
is, you know, probably good advice, but a lot of people are
2:38
just, you know, like, oh, how do you find one?
2:41
How expensive are they diffused by, you know, doing it?
2:44
Of course they don't know about Nectarine, but or, you know,
2:46
maybe they don't even want to spend the money in Nectarine,
2:48
want to do it for free. I love, I love our frugal
2:50
friends out there. And so, yeah, it's a, it's a
2:53
subret that's open to anyone to ask questions.
2:55
It's open to all financial advisors.
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And we flare the actual advisors with their actual register.
3:01
It's called the CRD number. So you can go and look them up
3:03
and verify their credentials on the broker check website.
3:07
And if you are listening and you want to go ask a question on
3:12
Reddit, go to reddit.com/R/ask a financial advisor.
3:18
And I've already been pumping it with my own nectarine.
3:22
Nectarinos. Nectarinos.
3:23
Nectarinos. I don't know what's the, what's,
3:26
what do you call Nectarinos? I don't know.
3:28
And so, yeah, they'll, they'll be on there.
3:31
I feel like that's something like Ned Flanders would say.
3:33
What's up, Nectarinos? That's cute.
3:36
OK cool. Very cool.
3:38
I'm learning a lot about Reddit and subreddit.
3:40
I don't think I'll ever be a redditor in that way, but.
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Yeah, I'm embarrassingly very much a Redditor.
3:47
I guess I don't know. Don't look at my history,
3:49
please. Yeah, Redditor, it sounds like a
3:51
slur. OK.
3:53
Should we get into our first segment?
3:55
Let's do it. OK, explain it like I'm 5.
4:03
All right, five year olds, this is another, you know, we we
4:06
tackle the state planning on our last episode.
4:08
And now just another question just burning the tip of the
4:12
tongue of every five year old listening.
4:14
What are these five year olds wondering today, Jen?
4:16
Yeah. I had a 5 year old come up to me
4:18
and ask can you explain lump sum versus dollar cost averaging?
4:22
Oh my God, this is all blippy, blippy, blippy, dollar cost
4:26
averaging, dollar cost averaging, dollar cost and
4:28
everything. OK.
4:29
You know, obviously a lot of five year olds don't ask this,
4:31
but you know what? You know who loves this term?
4:33
Dollar cost averaging? Like everyone.
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It's just one of these terms that just really, I think I put
4:38
it third. I don't know why, but the world
4:41
is all about marketing. I think if, if the current
4:45
presidential administration has taught you nothing, it should
4:47
teach you it's all about optics and it's it's not often about
4:51
substance. And you know, just this is like
4:56
a total aside. But there's a betting market
4:59
called Poly market. And there's this guy who was
5:02
interviewed and he he makes like hundreds of thousands of dollars
5:06
by betting on this, the predictions.
5:08
And he he predicted that JD Vance was going to be Donald
5:12
Trump's running mate back when no one knew who was going to be.
5:15
And do you know how he knew it was going to be JD Vance before
5:19
everyone else did? No, because he was like, you
5:22
know, Tisco was like trying to do some deep research, read
5:25
every article he could find on how Trump chose Pence for his
5:30
first VP running mate. And one of those articles, yeah,
5:35
won't remember 4 lifetimes. Ago, yeah.
5:37
Yeah, where to see today, who knows, But he's.
5:40
But in this article, Trump said he liked that Pence's last name
5:44
had five letters. So they looked together, look
5:47
good together in a sign that like lines up in like a nice
5:49
little sign sized rectangle. So then this gambler is like
5:52
that has the ring of extreme truth to it.
5:55
Then he went to look at like the 30 names in the shortlist and it
5:58
like, certainly wasn't like Vivek Ramaswami or, you know,
6:01
like very. Long for multiple reasons.
6:04
But then he found JD Vance is like, not only is that 5
6:07
letters, but it actually like kind of sounds like Pence.
6:10
And so then he got like, and at this point the, the gambling
6:13
market had like a 1% chance it's going to go to, to Vance.
6:17
And so he bet like 5 grand on Vance and that turned into like
6:20
a quarter $1,000,000 payout when Vance was eventually picked.
6:23
So spooky. But the point here is it's all
6:28
about marketing, right? Because Trump thinks like this
6:31
needs to look good on a sign because people make snap
6:34
decisions in 1/2 a second and they want a good looking sign
6:38
more than they want a deep understanding of the platform or
6:40
whatever. And I think that is kind of true
6:43
for dollar cost averaging too. I'd say dollar cost average
6:46
averaging and high yield savings account are in this camp like
6:49
very attractive sounding financial clever things like,
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oh, I'm going to do, I'm going to do a high yield savings
6:55
account and dollar cost averaging.
6:56
And the flip side of that is state planning is like this
6:58
gross sounding word and no one wants to do that, right?
7:02
I don't know why. That's just how I see the world.
7:05
OK, so that said, what is it? And I want to differentiate.
7:09
I think a lot of people think dollar cost averaging means just
7:13
putting money into your investments when you get it.
7:16
For example, in your 4-O1K, you go get a job.
7:20
Your 4-O1K has a little forum when you sign up or it's online
7:23
and you and you drag the little slider how much you want to
7:25
invest, you know, 5%, six percent, 7% of your income,
7:30
whatever it is. And then I think people say, OK,
7:32
that's dollar cost averaging, dollar cost averaging into the
7:35
market, which means, you know taking the average price of the
7:39
market over time on a periodic basis.
7:42
And in my opinion that's not dollar cost averaging what that
7:46
is. That's called periodic
7:48
investing, which is great. Everyone should be doing it,
7:50
periodic investing, getting money when you have it.
7:53
But in this conversation that you asked about dollar cost
7:56
averaging versus lump sum investing, that's something
7:59
different. Periodic investing is just
8:00
regular investing. When you get the money, take it
8:02
out of your paycheck, put it in. That's in a different whole
8:04
conversation. What we're talking about is if
8:06
you have a windfall, if you have a lump sum, if you have a big
8:10
influx of cash. If I get $1,000,000 from
8:13
polymarket by the advance. Exactly.
8:15
If you go win big on polymarket, if you, if you predict how Trump
8:20
makes decisions somehow and get it right and get your 1,000,000
8:23
bucks then and suddenly decide to no longer be a gambler and do
8:27
the more, you know, reasonable thing, which is to invest in
8:31
buying whole behavior and a low cost index fund like, you know,
8:34
we all should be doing with most of our money, our most of our
8:37
investing money at least. Then the question is the next
8:41
day after the market closes, you've got $1,000,000.
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Do you go to Fidelity, Vanguard, Schwab, click buy and dump it
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all in? That's called lump sum
8:49
investing. You get a windfall, you dump it
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all in the next day. Or do you say, hey, I don't want
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to take tomorrow's price. That's too risky.
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I'm going to make a conscious, purposeful decision to spread
8:59
this out over a certain period of time.
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For example, if you made $1,000,000, you could say, all
9:05
right, I'm instead of investing it today, I'm going to invest it
9:08
over the course of ten months because the Greenland things
9:12
happening, the tariff things happening, what's isn't there
9:14
some even more recent news? It's so hard every time I get a
9:17
New York Times like pop up in my phone and I watch it.
9:20
It's like you. Already forgot about Venezuela?
9:22
My shoulders yeah, yeah the other the other country we
9:25
invaded 2 weeks ago So you say OK, this is too volatile of a
9:29
time I don't want to take tomorrow's price I'm going to
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just dollar cost average on purpose over the next 10 months
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and so then the and and that's really.
9:39
The, the, So what you're saying is basically that these, both
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those of these terms have to do with the windfall and neither
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one have to do with like you investing over 30 years as you
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would normally? 100%, in my opinion, maybe other
9:50
people define differently, I'd say the investing when you get
9:52
your paycheck, that's just called periodic investing.
9:54
That's great. But this conversation, the
9:56
question we asked is all about the windfall choice.
9:59
What do you do when you get inheritance, when you get a
10:01
bonus at work, when you win a, you know, GAMBLING SITE
10:05
windfall, whatever it is. And the answer is
10:09
mathematically. And by the way, I know this
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because I wrote a program, I'm a computer scientist by training
10:16
and went back and wrote a program to basically make a
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dollar cost averaging versus lump sum investing calculator
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where you can put the number of dollars you have, the months
10:27
you're going to dollar cost averaged them over, and then the
10:31
total years you plan to be invested.
10:33
And then it will show you based on the historical stock market
10:36
from, you know, back in the 1800s until modern day, every
10:40
single month of the S&P 500, which one would have performed
10:43
better. And so, for example, if you have
10:47
a, let's forget the millionth thing, let's make it a little
10:49
reasonable. Let's say you have a big sales
10:51
bonus at the end of the year and you get $12,000 and you say, OK,
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should I put this $12,000 in in January?
10:57
Or should I split up $1000 a month for the whole year?
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Historically, 68.9% of the time, you'll end up with more money if
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you dump it in all in January. And so you basically have about
11:12
a 70% chance of having more money if you dump it all in in
11:15
January. So lump sum investing
11:17
mathematically, statistically is more likely to get you more
11:20
money, but sometimes dollar cost averaging cannot perform.
11:25
So for example, if you were to invest, if you were to get this
11:28
lump sum in 1931, kind of like right at the beginning of the
11:32
Great Depression, you would actually be much better by
11:36
dollar cost averaging because the market tanked and you and
11:39
you put most of those $1000 chunks in kind of at much lower
11:43
prices. You would have you would
11:45
actually have outperformed the lump sum by 1.5% relative to,
11:51
you know, lump sum investing. So dollar cost averaging can be
11:54
better the average performance. So if you put that $12,000 in,
11:58
you invested for 40 years. If you lump sum on average,
12:02
historically speaking, you'll turn your 12,000 into $547,000,
12:08
very good. If you do dollar cost averaging,
12:10
it's going to be less. On average it's $525,000.
12:14
So 547 versus 525. It's not a huge deal.
12:19
If you look at the best performance ever, lump sum
12:21
investing $1.7 million, cost averaging 1.3 million.
12:24
So on the on the best side, dollar or lump sum a little bit
12:28
better and then the worst performance ever, your $12,000.
12:30
Again, this is if you stopped investing right during the Great
12:33
Depression. If you stopped investing in
12:35
1932, your $12,000 would have turned into $80,000.
12:39
So again, not terrible for like, you know, being in a big Great
12:41
Depression. Whereas if you were dollar cost
12:44
averaging, it would have been just a couple 100 bucks lost,
12:46
still about 80,000. I know I was shouting much of
12:49
numbers on the microphone, but the net take away here is it
12:55
doesn't make a huge difference. And so I think what you should
12:57
do is what you feel in your gut. If you are like sweating at the
13:03
idea of putting this whole bonus into the into the stock market
13:06
on one single day, don't do it. You know, go make a little
13:12
calendar event, have it repeat on the 4th of every month for
13:15
the as many months as you choose, then that day, or you
13:18
can even go and automate it. You know, in Fidelity, Van Gogh,
13:21
Schwab, they all this say, say, hey, I'm going to automate, take
13:23
$1000 out of my checking account every 3rd of the month, do it
13:27
for 12 repeats automated. I much prefer automating even to
13:31
the calendaring thing because then you can't forget.
13:33
Then you've kind of guaranteed your dollar cost averaging to
13:35
the market. Like I said, statistically
13:37
you're going to end up with a little bit less than average.
13:39
But if it makes you feel better and you're going to like, you
13:42
know, be mad at yourself when the market drops by 30% and you
13:45
had just invested in a, you know, recent high, then just
13:48
don't do it right. So yeah, the and the other big
13:51
take away is either 1 you choose, the numbers are
13:55
phenomenal, right? I talked about investing $12,000
13:57
for 40 years, average performance, half a million
14:00
dollars, 12,000 to half $1,000,000.
14:03
That's mind boggling money. But it's only that big because
14:07
this program assumes you stay the course.
14:11
Like there's that saying like compound growth on an
14:14
uninterrupted is the, you know, eighth wonder of the world.
14:16
But if you interrupt it by panic selling, taking the money out,
14:19
yada yada, yada, doesn't turn to half a million in terms of like
14:22
30,000 or whatever it is. So that's the difference, it's
14:26
just dumping it all in. And by the way, I had a windfall
14:29
on my own a few years ago. I sold a company for $5,000,000
14:33
my share after taxes. Like the amount that was wired
14:35
to my checking account that day was about $2,000,000 the next
14:39
open day of the market. I don't know if this is exactly
14:42
true. It's approximately true.
14:43
It might have been two days or whatever.
14:44
I went to Fidelity, I clicked trade and I was a broke person
14:48
at this point. Like I was making $36,000 a year
14:51
and so I was clicking trade on like 5 different ETFs, you know,
14:54
like $600,000 at a time. Like buy $600,000 submit is a
14:58
bananas thing to do for me at the time.
15:01
But I did the lump sum because I understood the, the math.
15:03
And you know, that year it was 2015.
15:06
I think the remainder of the year the market kind of trailed
15:08
off a little bit like down 5 or 10%.
15:10
Like not a huge bad year. But then since 2015, basically
15:14
this, you know, besides 2022, we haven't had a down year and
15:17
besides like 2020 and 2022, we haven't had a bear market.
15:20
And so obviously, like it was a good thing to do as it has been
15:24
basically in all of history. So I personally lump sum invest.
15:27
But if that's not to your stomach, if that's not to your
15:32
risk tolerance, just spread it out, but put it in and keep it
15:36
there for a long time. That's what really is important.
15:38
That's what matters. OK, fantastic.
15:41
Shall we move on to our next segment?
15:43
Let's. Do it money.
15:46
Money. Can I ask a dumb one?
15:48
Are you asking a dumb person? Maybe I see them question No,
15:52
the dumb Honestly, the number questions are the better I think
15:55
the dumb. I think when people are the most
15:56
embarrassed about asking the dumbest question, it's like the
15:59
smartest question, so let's see what they got.
16:03
Today, OK, we got a quick one from Emily.
16:05
She says what's the minimum dollar amount to be considered
16:08
financially independent? For example, if someone spends
16:11
$10,000 a year and has $250,000 invested, are they financially
16:16
independent or would they need to do something additional to
16:19
mitigate risk from having a lower FI FI number?
16:23
I think you can say Fi. I can say fi, OK.
16:25
I like the way the Fi sounds, yeah.
16:27
Yeah, or FII, don't know. So financial independence is
16:32
when you can basically be pretty likely.
16:35
You can live off the growth and sustain, you know, sustain your
16:38
living off of your investments indefinitely.
16:41
And I'd say pretty likely because there's no guarantees,
16:43
right? You know, if I have $100 billion
16:46
in my checking account and then an asteroid hits the Earth
16:48
tomorrow, was I technically fine?
16:51
I guess we're all fine because we all could have lived forever
16:53
off of our investments at that point.
16:56
And and so there's no minimum. And so to answer your question
16:58
directly, is $10,000 a year enough?
17:00
The answer is yes, if you can live on $10,000 a year.
17:04
And so for example, if you live in one of the lower cost of
17:06
living countries, India, Nepal, Vietnam, Philippines, $10,000 a
17:11
year puts you I think a little bit above the average spending
17:14
per year in those countries. And so if you go and you might
17:19
be saying, oh, I don't want to go live like, you know, in a low
17:21
cost living country, then don't. You don't have to.
17:24
But let's say you're someone living in the Philippines and
17:26
you're spending, you know, you spend $800 a month on food rent
17:31
to, to make a living. And then your neighbor doesn't
17:34
have to. And, and by the way, and to make
17:35
your $800 a month, you're working your tail off 40 to 60
17:39
hours a week doing whatever your job is in the in the
17:41
Philippines. Is that the example I was using?
17:43
But your neighbor gets that same, you know, 800,000 bucks a
17:47
month, but doesn't have to work. Are they financially dependent?
17:51
Yeah. From your perspective, Heck
17:52
yeah, they are. And so financial and pence is
17:55
just about being able to live, sustain yourself forever on that
18:00
off of your investments. It is not a judgement of your
18:04
spending or your lifestyle or your level of consumption.
18:08
And there's just so many people who just have this like American
18:11
Ingrid, like burned in their brain thing.
18:13
Like, oh, no, if you don't have a fancy car, you're not
18:16
financially dependent. Like, it's all a matter of
18:19
perspective, right? So to, to, to Hannah's home
18:22
point home, I'm going to tell a couple little quick stories or
18:24
summarize them. There's a story about this, this
18:26
famous fisherman of the businessman.
18:28
I'm sure a lot of you have heard it.
18:29
And if you haven't, I'm going to summarize it.
18:31
I was going to read it all, but it's too long.
18:32
But basically there's this fisherman, he's like on his
18:36
boat, catches a couple of fish. He goes in a night and this
18:38
businessman sees him and says, what are you doing, man?
18:42
You know, you're only out there for an hour.
18:43
You caught a couple of fish and you come home like why don't you
18:47
go to stay for longer than use the extra fish and sell them and
18:51
buy a bigger boat and then hire a fleet and go do this.
18:53
And then and then, you know, the whole time the fisherman's like
18:55
and then what? And then what and then what?
18:57
And you know, and then the businessman's like, once you
18:59
have like this global like conglomerate of fishing
19:05
enterprise, then you can retire and you could spend the days
19:08
like with your family on the beach fishing for a couple
19:11
hours. And the fisherman's like, I
19:13
already do that. Why would I, why would I go
19:15
through all this extra work to, to live the life I'm currently
19:18
living? And you know, the more the
19:19
story, of course, is we're always seeking more.
19:22
We're always think that there's more, more, more, more.
19:24
And sometimes you just have to say like, when is enough?
19:27
And the other story I have about that is there's kind of a famous
19:30
quote. Kurt Vonnegut is an author.
19:32
He's talking to one of his author friends, Joseph Heller,
19:34
who who wrote Catch 22. And I think Kurt Vonnegut said
19:38
or no, Joseph Heller said they're both of this party.
19:42
I did a patch up sign this up. These two authors at this party
19:44
on some like fancy private island hosted by a billionaire.
19:48
And Joseph Heller says this billionaire makes more money in
19:52
a day than I made in the lifetime from selling Catch 22,
19:56
this like internationally famous novel.
19:59
And then Kurt Vonnegut says, yeah, but we have something that
20:03
this billionaire will never have enough.
20:06
And. Might drop.
20:09
Boom deep, right? And the point is like, you know,
20:12
it's kind of an answer to this question, which is, you know, do
20:15
you need to be a billionaire hosting private prop private
20:18
parties on a private island? Or is that billionaire still,
20:23
you know, staying up late tweeting all night, Elon?
20:26
Musk. You know what?
20:28
I was just talking about some other crazy billion, you know?
20:33
And so you know, your fine number is what you want from
20:37
your life, right? If it's a quarter $1,000,000,
20:40
living off $10,000 in the Philippines, fishing for a
20:43
couple hours a day and just living your absolute best life,
20:48
then yeah, heck yeah. Your financial defense, like,
20:51
you know, there's no rule judging you based on what you
20:54
choose your level of consumption to be, right?
20:58
And if you want more, that's cool too.
21:00
If you say, hey, I'm only happy when I have Prada bags or
21:05
something, I don't know. I always jump into these
21:07
analogies where I have. Just no business being.
21:09
That's a good example. Prada is pretty.
21:10
Do they sell bags? I don't.
21:11
Know. Yes, they do, definitely.
21:12
OK Fact Check. Prada sells bags.
21:15
I don't have any but they sell them.
21:18
OK, she's aware of them. And if that's what you want and
21:21
you want to hit that level, cool, go for it.
21:23
You know, there's no neither of you is more right or more wrong.
21:27
And it's really hard to accept that truth in our very
21:30
materialistic world we live in in America.
21:32
But yeah, there's no minimum. Wow, I like that answer.
21:35
I don't know what I was expecting, but that was a great
21:37
answer. OK, A.
21:39
Couple stories that I stole from hearing them before.
21:42
That's great. OK, let's move on to our next
21:45
segment, Scroll Patrol. Scroll Patrol.
21:53
OK, I find videos on the Internet and I I make Jeremy
21:56
watch them and review them. This was actually sent in by
21:59
Natasha and I'm not going to say anything because I've been
22:01
spoiling the last few, so we'll just watch it together and
22:05
Jeremy will give his reaction. Thank you for spoiling.
22:08
I need to be a This needs to be a very scientific experiment
22:12
where it with an unbiased audience.
22:14
Exactly. Here we go.
22:15
I gave my 4 year old $10 to pick anything he wanted at the
22:18
grocery store and this is how it went.
22:20
Here's your $10. Can you take him from my hand?
22:21
Oh, yeah. Thank you.
22:22
I do this to get him used to making his own decisions and see
22:25
that there's a cost of things. We can't just get everything we
22:27
want. One of those is 250, so that's
22:30
almost $3.00. So you got to give me 3. 1.
22:34
Thank you, sweet. I'm trying not to question
22:37
anyone. I can see a lot of people trying
22:40
not to pop into you. Oh, I like oranges.
22:45
We don't have the price tag. 31100.
22:50
It's $1.59. You had $0.50 left.
22:52
You only have to give me $1.00 for this one $4.
22:59
Here's one. Two 3-4 dollars meats are going
23:02
to be a little too expensive for our $2.00 so.
23:05
But there's also fish, which we don't like.
23:09
Raisin Bran. That one's going to be about
23:11
$4.00 and you'll only have two left, so you'd have to swap
23:15
something out. Then on a swap that orange out.
23:17
Leave the orange and then you could give me your last $2.00
23:20
and that would be enough. There you go, 2.
23:24
You're all out of money, so we. Could just all the money back
23:27
in? Well, we can't though, because
23:29
that's all the money we had. We ran out.
23:30
Where did all that stuff? Go well, you spent the money on
23:33
the food. If you want more money, you
23:35
could put some items back and you'll get the money back.
23:38
Otherwise you got to go to work to get more money.
23:40
I. Want to put the apple away?
23:42
That was about $3. You can put those 3 back in your
23:45
tray and you can go buy something else for $3.
23:48
Protein waffle. You want to try one here?
23:50
Try it out. Who won my favorite crack?
23:54
Gluten free, there's $6. What's $3?
23:58
These are about $3. I only get those many pancakes.
24:02
Well, those were almost your whole $10.00 for those pancakes.
24:05
How? About have to put everything
24:07
away. I want to put everything back.
24:09
You really got one? We're only getting one thing
24:18
today. Exactly, except you have $1.00
24:21
left. For examples, we don't have to,
24:26
We're not flying them right. They're not little bag.
24:29
Well, you can grab it from there.
24:32
Only get some pizza from all that shopping.
24:35
One slice of pizza is 240 to 3:50 and you only have $1.00.
24:39
Since a pizza is 2 to $3.00 and you only have $1.00, maybe you
24:43
and dad could split a pizza so you each get $1.00 worth of
24:46
pizza. Okay, okay, let's go look what
24:49
they got. May I please have one cheese
24:52
pizza? 239. 239, that's almost perfect.
24:55
All right, now you got to give me your last dollar.
24:58
And I'm never going to get the dollars again.
25:01
Well, if you do some work, that's how you get more dollars.
25:04
Oh, why no pretend that scooping dirt?
25:07
Oh, would that be your work? So with a little pizza help from
25:10
Dad, he landed at $11.58, which is close enough.
25:14
All right, so that was like the cutest thing I've ever seen.
25:17
First of all, I have, I have my own tradition of miking up my
25:21
own child and soon to be children for every Mother's Day.
25:25
And we go shopping just like this.
25:26
And so like the whole time I'm just thinking about and miking
25:29
up toddlers is like the cutest things in the world because
25:32
like, their voices are so adorable.
25:34
They say the cutest thing. And yeah, I mean, I love this
25:38
video. It's a really engaging video
25:39
too. I know if you're just listening,
25:41
I mean, if you're listening even.
25:42
If you're listening, it's still probably so cute because his
25:44
voice is so cute. He's like trying not to bump
25:47
into you. Yeah, yeah, exactly.
25:50
Like when I like mic up yeah, mic it every year you watch it
25:53
back, you don't even hear these things.
25:54
He's like always like like jabbering to himself and the
25:57
microphone picks up so well so it's so cute.
26:01
So yeah, yeah, video amazing 4 year old perfection.
26:05
And then like the the message. I actually really like this
26:08
because I think even adults now in this age of digital
26:13
everything like tap to pay Apple, blah, blah, you know,
26:17
we've become the concept of buying this has become so
26:21
abstract. And So what happens is when
26:23
you're in the process of shopping, just tap, worry about
26:27
there, tap, tap, tap, worry about, let worry about later.
26:29
And then you go and eventually, you know, braces, you open up
26:34
your bank account or look at your credit card bill or
26:36
whatever, and you're like, Oh no, like what happened here And
26:38
you kind. Of see that meme?
26:39
That's like when you go through all the charges and you realize
26:42
that nobody hacked into your. Account.
26:44
Yeah, exactly like this is this is this is outrageous.
26:47
I'm about to call a bank. Let me look at this like I did.
26:50
OK, those look pretty familiar. Yeah, those 40 bucks, is that up
26:55
pretty quick, right? Spider man pointing at spider
26:57
man meme. It's like it's all meme.
27:01
Who did it? Oh been there very recently.
27:04
I'm like every month so but I, I used to be not like that.
27:09
I used to kind of be more like this 4 year old where I would go
27:13
to the grocery store and be like this needs to be under 50 bucks
27:15
because I only have 500 bucks in my account and rents 400 bucks
27:18
or whatever. It's very much like and if
27:20
you're just listening, he had his little kind of plastic
27:21
coins. He was like.
27:22
I don't. I was wondering why he didn't
27:24
give him real dollars. If it was $10, I feel like it
27:26
would have been a good, Yeah, you know, But anyway, I don't
27:28
know. Yeah, because he's 4.
27:31
I don't know, It's like you're going to have to deal with the
27:33
real dollars eventually. But you know, I also think that
27:37
kids don't really have a concept.
27:39
Like that's one of my favorite tricks is you give a kid $100
27:42
and you offer like $100 bill and you offer to give them two
27:44
singles in exchange that they'll always take that deal until
27:46
they're like, you know, 7 or 8 or something.
27:48
So I think maybe the physical tokens were more meaningful to a
27:52
four year old. I mean, of course, could have
27:54
been 10 singles too, of course, but I don't know.
27:57
We're not here to judge on the currency.
28:00
But yeah, I think I think that's great.
28:01
Now, honestly, I think it's like, obviously it's like super
28:04
cute about a four year old, but I think adults should be
28:07
learning this lesson too because I think most of us as adults
28:10
just like tap to pay, Apple Pay, Android Pay, whatever, and don't
28:15
even think about the actual scarcity of their dollars.
28:19
It just feels infinite because it's all so abstract until it's
28:22
too late and then you're looking at your credit card bill and
28:24
it's a mess. I think it's getting people into
28:26
more and more debt, more and more trouble.
28:28
And so I think we should be whenever we spend thinking about
28:32
it like these little tokens and that they're going to run out.
28:34
You know, I don't want you to not buy beautiful things.
28:37
But if you spend if you spend more tokens than you have, then
28:40
you're gonna be digging a lot of dirt ditches like this little 4
28:42
year old is for a lot more years, right.
28:44
Digging dirt, digging digging dirt.
28:47
Yeah, it's like that's a job, right?
28:48
Someone got dig the dirt. That's true.
28:51
It's like a so I love this video.
28:53
I give it. I think we're on a streak of hot
28:55
videos. I give an A plus I think Is this
28:58
2A pluses in a row? I think so, yeah.
28:59
Yeah. I knew you would like them like
29:01
you have 4. Is Matteo 5 yet or he's just
29:03
still 4? He's 4, he's a, He's an honest
29:06
four and a. Half I love it.
29:07
So I was like, you have a four year old and this is just the
29:08
cutest video. Thank you so much, Natasha for
29:10
sending it. As soon as she was sent in, I
29:12
was like, Oh my God, Jeremy's going to love this.
29:13
So that was great. I do love it yeah.
29:15
Everything about it well executed like cute kid and I
29:19
really think an important message as simple as it is, but
29:22
we we really lose sight of that. Yeah, facts.
29:25
OK, let's get into our last segment.
29:29
Jeremy had time today. I had time today.
29:32
We're going through your comments, we're getting into the
29:34
DMS, we're getting into flame wars and then a good old
29:37
fashioned 2000s flame war, so. Aggressive flame is so
29:42
aggressive. OK so you posted a your half
29:46
naked in this post so unfortunately we do have to look
29:49
at this picture but it says retirement fortunately.
29:52
I'm not. My guns are a blazing.
29:53
I don't want to look at, I don't want to look at my boss half
29:56
naked for a job. Okay, that feels like you know.
29:59
I'm on a, I'm on a boat, you know, with a.
30:01
Hat and a dog. Whose dog is that?
30:04
That is a friend's dog, OK, not my.
30:07
Dog, let's not get into it, all right?
30:08
Retirement is not an age is what the post said.
30:10
Do you want to explain what you talked about in this post and
30:13
we'll get into the comment? So, yeah, I mean, it's kind of
30:15
what we've been talking about the last few weeks, which is a
30:18
lot of people think when they hit 65, then their job they've
30:22
worked at for 40 years gives them a watch, and then they
30:24
never need to work anymore. And these days, you know, maybe
30:27
that was never true. It's especially not true today
30:29
because most people don't have pensions.
30:32
Most people don't work for a job for 40 years.
30:35
Today, if you want to retire, you need to have enough money, a
30:37
certain amount of money to retire.
30:39
And so this post is talking about the 4% rule, which is
30:41
saying, hey, whatever amount of money you have invested growing
30:45
in your investments, that's cumulative, your four O 1 KIRIRA
30:49
brokerage account, all that combined, take 4% of that today.
30:53
And then that's kind of the amount of money you can pretty
30:55
much count on indefinitely going forward to live on.
30:58
So for example, if you have a million and, and this is in
31:00
fact, this is what the last I think Emily asked about, she's
31:03
like, if I have $250,000, can I take 4% of that, which is
31:07
$10,000? And does that count?
31:09
And the answer was, yeah, if you can live on 10,000, that counts.
31:13
If you know a little bit more real sick number, if you have a
31:15
million, that's 40,000. Or if you have 2.5 million,
31:18
that's $100,000 a year. And so if you can get to your
31:21
investments, to where your, you know, your quality of life, your
31:24
level of consumption wants to be, then you're retired, not
31:27
based on an actual age. And it's kind of all hinging on
31:30
this 4% rule and then this commenter said.
31:35
OK, they say while a good rule of thumb, I'd say if you're
31:38
trying to retire very young, you might need to go a little higher
31:42
than 25 X since that's based on the 4% rule.
31:46
Safe withdrawal for a longer than 30 year retirement is
31:48
probably closer to 3.5% or even 3% depending on how long you're
31:52
trying to stretch it. And that was already not really
31:54
a mean comment. They were just like explaining
31:56
things, but they they button it with.
31:58
Either way, if you're you hit 25 X, you're killing it, which you
32:01
know, facts. All right, listen, jerk, come
32:05
back little like the nicest. Energy.
32:08
The nicest human ever with pointing out and, and you know,
32:11
for the record, like they're 100% right.
32:13
And I always kind of brush over this 4% rule.
32:16
So I'm going to take just a moment to kind of explain where
32:19
it really came from. And so it came from something
32:21
called the Trinity study. And because it happened at
32:24
Trinity University and these economists basically looked at I
32:27
think it was like a 5050 and they looked at a few different
32:29
portfolios, like 60407525 of stocks and bonds over different
32:37
every every period of years in like modern economic history.
32:41
And then over different withdrawal timelines, like 15 or
32:45
30 years. You know, for example, if you
32:46
retire at eighty, you probably don't need 100 year or sorry,
32:50
you don't need a 30 year withdrawal time frame because
32:52
that'd put you to 110. And you know, that's very.
32:55
Unlikely. Why live that long?
32:57
Yeah. I don't know unless I feel
32:59
really good. And so then it basically said,
33:01
OK, what percent can you withdraw every year and have it
33:05
be successful, for example? So if you take out 20% per year,
33:09
that will never, there's no, there's no bull market in
33:12
history where that would survive for 30 years because you're
33:14
taking out a fifth of your portfolio.
33:16
And even if it's growing at 14% for a few years, you're
33:19
eventually going to have a down year and then you're going to
33:21
run out of money. Meanwhile, if you take out 1%
33:24
per year, there's no, you know, window of history like 1965 to
33:28
1995 or you know, 1980 to 2010. There's no period window of
33:33
history where 1% would fail. You're always have money
33:36
leftover. And also by the way, they they
33:40
account for inflation by taking the original percentage with
33:43
withdrawal rate, locking that dollar amount.
33:45
So for example, if you have $1,000,000, if you lock in
33:47
40,000, then every year you increase it for inflation.
33:50
So the first year you take out 40,000, the second year you take
33:53
out 40,250, the third of you take out 40,600, whatever it is.
33:57
And so basically you never have to theoretically inflation's,
34:01
you know, hard to boil down to one exact number, but the idea
34:03
is you never have to like lower your quality of life to live on
34:06
the same amount of money. You're basically living the
34:07
same, you know, on the same value of your dollar over a
34:11
year. And so they're, they're
34:12
basically trying to answer like how much can you really take out
34:15
of a portfolio and be very unlikely to go broke.
34:17
And the number they kind of came up with was if you do 4%, that
34:21
works in about 96% of years. And so there's a couple years
34:25
where inflation got, I think it was like in the 70s where like
34:27
there's a stagflation years where inflation got really,
34:30
really bad. So you have to take out more and
34:31
more and more money, but the, but the market stayed kind of
34:33
flat. And that puts you in a position
34:35
where you're withdrawing more and more and more from your
34:36
account, but the market wasn't going up enough.
34:38
And then we actually did go broke.
34:40
But the other 96% of the time it worked.
34:43
And you know, everything I just said was written into a, a
34:47
paper. The 4% rule just became very
34:49
catchy. It's one of those rules, just
34:51
like dollar cost averaging, high yield savings count 4% rule.
34:54
People like these little catchy phrases without, you know,
34:57
really understanding the depth of it.
35:00
But to this commenter's credit, the the Trinity study stopped at
35:04
30 years. They just looked at it.
35:05
They weren't, they weren't looking at early retirement
35:07
necessarily. They're looking at like a normal
35:08
retirement. So if you retire at 60, is it
35:11
going to get you to 90? Like that's kind of like the,
35:14
the wider range of the normal retirement age, like retiring a
35:17
little bit early, living a little bit late.
35:19
But when we talk about FIRE, like I was in this post and not
35:24
retiring at 60, but retiring at 50 or 45 or 40 or 36 like I did
35:30
in real life. Now I'm hoping, hoping to live
35:32
more than 30 years off of my investments.
35:34
I'm hoping to live 60 years or whatever.
35:36
And, and this commenter correctly said, and so basically
35:40
other people have extended the Trinity study.
35:42
They're like, OK, let's look at 40 years.
35:43
Look at 50 years and beyond. And it's exactly right.
35:46
If you stick at 4% and you extend the time frame, then you
35:50
do get into these situations where it's like, OK, you were
35:52
running low already at 30 years and then at 40 years you went
35:55
broke based on inflation of the market crashing or whatever.
35:58
And that could that takes you down to more to like a 90%
36:00
success rate of 4%. If you want to get back into
36:02
that like 96 to 98% range, you have to dial your withdrawals
36:07
down to 3 point, you know, 3% to 3.5%.
36:11
So mathematically, this person exactly right.
36:15
Super lovely sodding person. I have no notes.
36:18
This is not a flame war. I have nothing bad to say.
36:21
That said, in reality, first of all, there's other side of this
36:26
coin which is, you know, Bill Bengen who is the creator of the
36:30
4% rule has come out and said the 4% rule is actually wrong.
36:33
We looked at that in too narrow of a view because it was holding
36:37
too many bonds or wasn't diversified enough.
36:39
He's like, it should really be 4.74.7 is the number or 4.7 to
36:43
5. And so not a lot of people call
36:44
it the 5% rule. Although to the commenters
36:48
credit, you know that he wasn't extending the time from here
36:51
just like adjusting the portfolio.
36:54
But there's, you know, there's arguments on that side.
36:55
But the truth is this almost every personal finance topic or
37:02
challenge has very little to do with a spreadsheet.
37:04
And everything we're talking about here I consider
37:07
spreadsheet math. This is, you know, you put a
37:09
spreadsheet, you you drag the Excel thing down. 4050 sixty
37:13
years. You see what number is it
37:14
positive? Is a negative?
37:15
Did it work? But that ain't how life goes,
37:18
Jen. You know, I know.
37:21
Believe it or not. Yeah, Jen, you're you're the one
37:24
that's really at fault here. Jen's like I'm going to I'm
37:27
going to retire when I'm 40 and never look at my bank account
37:29
ever again. I'm.
37:30
Going to put my years on my I blurt out my name.
37:33
That's why she blurs out her name.
37:34
All the ones that like. Make personal.
37:36
Physical. Yeah, yeah.
37:38
What's with Jeremy's stupid face?
37:40
And his ears are big and he has no eyebrows?
37:42
I'm like, who is Jay Mundia, 96? 96 I wish. 86 maybe?
37:50
Well, you put your elementary school graduation guys, if you
37:52
identify with hilarious, all right, we're we always get off
37:58
track, but the off track parts are the best parts.
38:00
So yeah, real life ain't the spreadsheet.
38:02
Real life is. You adapt.
38:05
So, for example, if you retire and it starts the worst 10 year
38:11
market in history and inflation's, you know, you go to
38:14
the like the stag inflation in the 70s, inflation's going
38:16
crazy, market's going down, you for 10 years, say I refuse to
38:21
make a dollar of income and I refuse to like adjust my
38:24
spending by a dollar. I'm going to like live and die
38:26
by this one piece of spreadsheet math I did when I was 36.
38:31
And I'm going to you know, you know, that's how it works,
38:33
right? And so first of all, you can
38:35
adjust. And what really happens is you
38:36
adjust, you know, and then, and the flip side, what happens in
38:39
most scenarios isn't you barely make it.
38:42
And you know, the vast majority of scenarios you end up with
38:45
dramatically more money than you started with.
38:46
You know, you, you retire with $1,000,000 and then you live on
38:50
4%. And then a few years later
38:52
you're like, oh, wait, I have $3,000,000 here.
38:53
Wait, I have $5,000,000 because the market's done great.
38:56
You adjust, you don't say, no, I'm going to keep living on, you
38:58
know, now like less than 1%. You'll say, hey, I can actually
39:02
bump this up a little bit, right?
39:04
So I think one thing 2 is people who retire early, in my
39:08
experience, don't have 0 income for the rest of their life.
39:12
In my own personal example, I retired at 36 and the first
39:16
thing I did was I and you know, The thing is like, I think
39:21
people who are ambitious money folk, money aware, you know,
39:26
goal oriented, don't just go play Xbox list of life and they
39:31
don't have to go get a high paying job.
39:33
They don't even have to start a business.
39:34
But usually things come up. I'll give you some examples of
39:36
my own life. The first thing I did when I
39:38
sold my companies, I got a plane that flew to Italy to do what?
39:40
To coach beach volleyball, which like in my mind was 100%
39:43
vacation. Like what is like a more fun
39:46
thing to do, but it paid, it paid a little bit.
39:48
It was like, you know, it wasn't like AI was a coach like the
39:50
Olympic team. I was coaching kids and it paid
39:52
like, you know, 500 bucks a week or something like that.
39:54
But you know, like that was money.
39:56
I also started a passion project called personal finance club.
40:00
No intention to ever have any make any money doing this just
40:04
literally for fun because I like talking about this stuff.
40:07
And after doing it for a year and a half, I found myself with
40:09
like 90,000 Instagram followers and I was like, you know what,
40:12
I'm going to make a video course because people keep asking the
40:14
same questions and I was like, I'm going to give it away for
40:16
free. Then I was like, people value
40:19
free and it's and it's costing me kind of some money to like,
40:21
you know. Go to these conferences and host
40:23
the website and yada yada, yada, I'm going to sell it for 50
40:26
bucks, see if I can like cover my expenses.
40:28
And then the first week I saw on this course, I made $90,000 and
40:31
I was like $100,000 or something like that.
40:33
Or one time I forget the exact number.
40:34
A lot of money, like a crazy amount of money.
40:35
And now like, that's why Jen's here and that's why I'm here
40:38
because now we can afford to like, you know, make some
40:40
payroll and pay people. And so, you know, that's not
40:43
going to be your story. Of course, everyone doesn't
40:45
become an Instagram influencer, coach beach volleyball.
40:47
I have a friend who created a small business selling watering
40:50
cans and you know, and, and they're like crushing it.
40:53
They're like these beautiful, like colorful painted.
41:14
Calypso can company, but anyway, you know, she quit her day job
41:21
and is doing this now, you know, because I think I don't want to
41:27
like selling out too much. But, you know, people, ambitious
41:31
people who make good money end up doing more things in life.
41:35
So so that's, you know, so to the commenter is exactly right
41:39
mathematically spreadsheet. Yeah.
41:41
The longer you spread it, spread it out, the more likely you are
41:44
to like kind of be in like one of these bad, you know, window
41:47
time frames where you don't get like the infinite money world.
41:50
You start to like decay into the bottom.
41:52
But real life ain't like that. So I think what I actually see
41:56
more often in real life is people ending up with too much
41:58
money. You know, the people who retire
42:00
early don't run out of money 20 years later.
42:02
They usually end up making more money.
42:03
And so I'd say mathematically correct, but I'd say spirit of
42:07
the 4% rule is perfectly fine. If you, if you can live on 4%,
42:11
it's time to think seriously about quitting your job.
42:13
If you hate your job and work in this, you know, start a side
42:17
hustle, do nothing for a few years, you know, go coach beach
42:21
volleyball, you know, watch it, see how it's going, adjust along
42:24
the way. You're in the ballpark if you're
42:27
if you can live on the 4% rule, but it's not some sort of
42:29
guarantee because there are no guarantees.
42:31
Nice. I always say live on the 2% rule
42:34
and then when you're 95 ball out, just go crazy.
42:37
Yeah, Jen has all sorts of 95 year old plans.
42:40
She's trying to go crazy. Yeah, she's reserved the the
42:43
ballroom in the Aria in Vegas in 2068, and it's going to be a
42:48
wild party that's. Actually going to be coaching
42:50
beach volleyball in Italy at 95. OK, there you go.
42:54
They'll get your 500 bucks. They're probably going to be
42:56
paying 600 bucks a week by then saying you have more to spend.
42:59
Shut up. OK, awesome.
43:01
That is all. We have time for you today on
43:03
the Personal Finance Club show. Thank you for listening and
43:05
we'll see you again next week. And don't forget the 2 rules of
43:08
building wealth. Rule #1 live below your means
43:11
and rule #2 invest early and often.
43:14
See you next time. The personal finance club show
43:16
is produced by Jeremy Schneider and Jen Wendia, music by Essa
43:19
Balu and Homie. Send your questions to podcast
43:22
at personalfinanceclub.com. The Personal Finance Club show
43:26
is Co hosted by Jeremy Schneider who is a co-owner of Nectarine
43:29
and SEC Registered Investment Advisor.
43:32
The views expressed on this show are those of the hosts and
43:34
guests and do not necessarily reflect the views of Nectarine.
43:38
Please refer to hellonectarine.com for all
43:40
relevant disclosures. This podcast is for
43:43
informational and educational purposes only and should not be
43:46
construed as personalized investment advice or a
43:48
solicitation to buy or sell any security.
43:51
Listeners should consult their own financial, legal or tax
43:54
professionals for advice specific to their situation.