00:00:00 Speaker 1: Welcome to How to Money. I'm Joel. And I'm Matt. Today, we're answering your listener questions. That's right, buddy. 00:00:13 Speaker 2: Happy Monday to everyone out there. We hope everyone had a fantastic weekend. And rocking the black t-shirt, is this like casual Mondays or something, Joel? 00:00:22 Speaker 1: What's going on here? 00:00:23 Speaker 2: I feel like Monday episodes are like about getting down to business. 00:00:26 Speaker 1: That's right. That's how I think about it. Got my work gloves on. I'm ready to dig in deep. 00:00:33 Speaker 2: We've got a listener who's asking about the best way to finance. He's looking to buy his neighbor's house. We'll get to that question. Another listener is looking to maximize his long-term growth on a beneficiary. 00:00:50 Speaker 1: 401k that he's receiving. 00:00:51 Speaker 2: Another listener is paying a little extra for some Vanguard stuff. Yeah, normally you don't pay much for Vanguard, but this listener is, so we'll talk about that. Plus maybe some other questions that we'll get to during today's episode, buddy. 00:01:05 Speaker 1: But how are you doing over there? I'm good, man. I'm good. I'm wearing my black t-shirt. Maybe I should have dressed it up a little bit. Sorry about that. You look nice with the collar. I don't know. On Friday episodes, I feel like I can dress down because it's like, oh, it's the Friday flight. It's casual. 00:01:20 Speaker 2: It's like casual Fridays, you know? But yeah, you doing good? I haven't talked to you yet today. 00:01:25 Speaker 1: I'm great. Yeah, great. I've had sick kids, sadly. 00:01:29 Speaker 3: Oh, dude. 00:01:29 Speaker 1: The strep throat has already struck our family as it does in the fall. And so now we are trying to think through, at some point the pediatrician recommends sometimes if your kid gets strep enough to get their tonsils removed. And that's an expensive surgery. So we're trying to decide whether or not that's the right way to move forward. But it could prevent the One, our kids just being sick all the time. And then two, the costs of going to the pediatrician, getting swabbed on the reg, which we pay full cash price for. 00:02:04 Speaker 2: The whole ordeal of getting just sidelined as well from life. Are they, yeah, are they missing more school or? 00:02:11 Speaker 1: More school. One of them is today. So, but I think they'll be back tomorrow. But yeah, what, like, what can you do? You're doing your best. That's part of it, man. 00:02:20 Speaker 2: Yeah. 00:02:20 Speaker 1: And I will say actually one of my favorite podcast episodes ever. is from Russ Roberts' podcast, which the name is escaping me. Yeah, yeah. The Economist. And he interviewed the guy who started the Surgery Center of Oklahoma, and they do like upfront pricing. They publish it on their website. And so there is a similar healthcare provider near where we live that does that for ENT stuff. So that was kind of fascinating. You can actually just like scroll through their website And they will tell you exactly how much it's going to cost. I called them up. I was talking to them and they said, people are traveling here from all around the country, from California, just to know how much you're going to pay all in up front. So we're lucky to have them nearby. And that might be the direction we're going into. Econ Talk is the actual name of the podcast. But he's pretty smart. Well, all right. Well, you want to, should we kind of keep moving forward on things? Let's do it. I've got a little surprise for you. Are you drinking anything over there? A little bit of cold brew. Oh, all right. 00:03:23 Speaker 2: Here's an episode where neither of us are drinking beer. And so this is a little, this is going to be a little treat for all the how to money YouTube watchers over there. 00:03:33 Speaker 1: You're drinking milk? Or are you going to pour your, okay, you're going to pour your espresso. I'm going to do this live. I've never done this before. I'm going to pour it. 00:03:40 Speaker 4: Wow. 00:03:41 Speaker 1: And then you got to, oh, it's beautiful when it mixes together. And then when you lick your cup, that's the best. People love seeing that. 00:03:49 Speaker 2: It dripping all over my desk or whatever but look at that i mean come on can you beat like the beauty of the you. 00:03:56 Speaker 1: Have to stir that together now or is it automatically just going to congeal yeah you get a little given i didn't sit down to the recording studio with a spoon maybe i'll just use a ballpoint pen or something uh well it's so pretty and so like i've noticed some coffee shops they'll bring it out and if you ask for like a an iced latte or something like that. 00:04:14 Speaker 2: And they'll leave it like this. So you can see the mix. It's almost like a Guinness. Like when a Guinness gets poured. 00:04:19 Speaker 1: Exactly. Yeah. But I love that kind of cascading effect when, when they're pouring the Guinness, it's not too poor. It's not quite that good. 00:04:27 Speaker 2: Uh, it's not that beautiful, but, um, but then you're kind of left with a more of an espresso heavy sip on top and more of the milk down to the bottom. So I'll just give it a little stir here, but yeah, here we go. Uh, you and I are both, we're not giving up craft beer, but it's just less of a priority. You know, like there are other craft beer equivalents, uh, And quite literally, mine is coffee. 00:04:47 Speaker 1: You've spent more on coffee than most people would deem acceptable in the last year. It's so fun. I love it. 00:04:54 Speaker 4: Hey, dude. 00:04:54 Speaker 1: Yeah, when it is your craft beer equivalent, you can easily justify the splurge. So more power to you on that. All right. Let's get to questions. Yeah. 00:05:03 Speaker 2: You want to tell folks how they can send their own listener question in? Yeah, if you've got a question for us, we'd love to hear it. Record it on the voice memo app of your phone. 00:05:10 Speaker 1: Email it over. Howtomoneypod at gmail.com is the place. And hopefully we can take it next week on the show. That's right. 00:05:17 Speaker 2: Our first question is from a listener. And yeah, he's looking to buy another house in the same neighborhood. 00:05:25 Speaker 4: Hey guys, my name is David and I live in Salt Lake City. I'm 34 and married. We have a home and we've got about... $ 20, 000. 00:05:35 Speaker 1: Left on our mortgage. 00:05:37 Speaker 4: I earn about a net 400,000 per year. And we're in a good position where we max out our 401k. We just have a solo 401k, but an opportunity has just come up where our neighbor's house is becoming available. And we're trying to figure out a way to, or what the best way we know for sure that we are going to purchase it. but we don't know the best route to take. I've been told use other people's money and the stock market is going to outperform whatever percentage our mortgage ends up being, but I'm not. 00:06:18 Speaker 1: Sure what the best way to get the lowest mortgage would be. 00:06:22 Speaker 4: Unfortunately, our bank does not allow us to do a HELOC, which from what I understood, that would have allowed us to lock in the mortgage rate that we currently have but i could be mistaken on that um anyways we've got about 180 and the 401k we've got about 200 000 liquid and i'm just not sure what the best route to do um to purchase that home so that's my question appreciate the input thanks bye. 00:06:56 Speaker 1: All right Dave, was it Dave or David? David. David. There's so much going on here. By the way, Matt, I think we just have to say up front too, to have a salary that high to be maxing out, he said the solo 401k, which if he's doing that- I've got a question about that. 00:07:15 Speaker 2: Is he maximizing the solo 401k from like the employee standpoint or from the employee slash employer? 00:07:22 Speaker 1: Yeah, that's a good question. Because if he's doing both, that's I think $ 72, 000. in a year that he's investing for his future, which is incredible for this year. 00:07:32 Speaker 2: Or is it just the 24,500 employee cap? Even still, that's a good bet. Even that right there is very impressive. But that's something I want to keep in mind if he's got more room for tax advantage investing. 00:07:45 Speaker 1: And I will say most people who have an income as high as David's don't have $ 20, 000 left on their mortgage. They have found ways to increase their debt load, commensurate with their income. And David is, I would say, in many ways sitting pretty because he has really prioritized his financial future, but he has also kind of stayed lean in terms of his expenses. So I think he's got a really good shot at buying this property that he wants next door without over-indexing himself and overdoing it. 00:08:17 Speaker 3: Totally. 00:08:18 Speaker 1: Yeah. 00:08:18 Speaker 2: And it's worth saying too, listening to him this time when he mentioned like we have this opportunity that has arisen. 00:08:25 Speaker 1: I love that he sees this as an opportunity. 00:08:27 Speaker 2: Like basically this is something when I hear opportunity, what that tells me is that this was not something he was counting on, but he is in a position to be able to pull something like this off. 00:08:35 Speaker 4: Right. 00:08:36 Speaker 1: Yeah. 00:08:37 Speaker 2: And I think that's just something for us to always keep in mind just as we're looking to do smart things with our money. But I think there's a couple of different ways we could potentially approach Dave's question here. And I think maybe one of the answers or one of the questions he's asking is how much money should I put down on this house? 00:08:57 Speaker 1: Right. 00:08:57 Speaker 2: Cause he's talking about how much cash he has on hand. 00:09:00 Speaker 1: And he's also like 200 grand. He's got 200 grand. 00:09:02 Speaker 2: He's just like, well, also if I don't put down as much and I'm using other people's money, right. If I'm getting a mortgage, but then he's got more of that money that's tied up at a whatever six, six and a half percent. I don't know whatever the 30 year average is today. And so I think this comes down largely in my mind to, do you want to put down a smaller amounts and have more of your money with the ability to invest in the market that could see potentially higher returns than let's say a six and a half percent, right? So it's not guaranteed it's potential, but it has the potential for it to be big. Or does he put down a ton of money, um, in order to get the guaranteed, essentially the guaranteed rate of return of let's say 6.5% by putting more of his dollars into the mortgage, more of a down payment in order to lower his borrowing costs on that property. So that's one way to think about it. And if that's the question you're asking, David, I don't know. It's really, really tough because it comes down to your appetite for risk. It depends on what some of your other goals are. I would absolutely say put down enough to avoid PMI. That's kind of a slam dunk where you have the ability to completely eliminate that. But beyond that... Um, gosh, you know, beyond like a solid 20% down, it kind of depends on your appetite for risk, I think. 00:10:27 Speaker 1: Well, typically as if you're buying an investment property, 25% down is what gets you the best, most favorable terms. So sure. I don't think it's an investment property though. Cause he's calling it a home. That's what I was curious about. Cause he didn't exactly state why he's buying it. And I was like, are you buying this? so that you can kind of create a compound. You own and enjoy the whole property, yours and next door. Or is this going to be a rental property? Are you potentially even going to? Maybe he's going to sell it. One thing worth doing. Yeah, maybe he's thinking about flipping it or renting it to somebody that he's friends with or something to have a good friend live nearby. It would help to know exactly what he's trying to accomplish with this property. That's true. Because one of the other things he could consider doing, Matt, is renting out the house he currently lives in whether he's renovating or doing something to the home next door, buying that as a personal property and living there for a couple of years, right, at least, and doing some renovations to that. That could be a really savvy way to approach it. So, and it could reduce taxation, right, at the same time. So those are things worth considering, but it was just hard to know exactly what he's planning on doing it from what he said in the voice memo. One of the things he said too was, what if I take out a HELOC? 00:11:41 Speaker 2: Well- Oh, yeah. 00:11:43 Speaker 1: He thought that the HELOC is going to allow him to borrow money at the rate of his current mortgage. That is not typically the case. You're taking out a new loan product and you're going to pay whatever the financial institution you're borrowing from says that they're charging you. And so that is why shopping around matters so much because that can vary meaningfully. But even still, we're probably talking about something in the 7% range. And when we're talking about taking on debt in the 6.5%, 7% range... we are talking about, he said something along the lines of like, people have told me that the market is going to produce better returns than the interest rate, whatever interest rate I get. That might be true, but that might not be true. And over what time? There's a lot of assumptions built into that. There are a lot of assumptions. And I think you could say that a lot more confidently, right? When interest rates were closer to the 3% range, you can't say that nearly as confidently in 2026. And so I would just be wary saying, I'm going to take on extra debt and I'm just going to invest more because it could lead to a liquidity problem. And you might not come out ahead in the next decade if you take that approach. 00:12:50 Speaker 2: Yeah, I think that's what I completely find myself in a situation where I'm trying to envision myself in that situation. And I'm saying, well, I wouldn't do that because I've got a lower mortgage. But if you are purchasing a new home with rates where they are today, I really, gosh, I think I would be really tempted to put more cash down in order to reduce that payment and I mean, just month after month and the ability to get that guaranteed rate of return. Yeah, I mean, I think if it was, let's say mortgage rates continue to climb and we're over 7%, if that was the case, I think I would pretty confidently say, yes, I would do that. But if you're closer to 6%, maybe, you know, putting down a little bit extra, you can kind of get it into. 00:13:35 Speaker 1: The upper fives or something like that. 00:13:37 Speaker 2: Low sixes. that's just a really tough spot to be in. And I, that's why I kind of led with that. Cause I think that's, to me, that's the trickiest part of this entire endeavor. It's not that like he knows the property, he knows the neighborhood is right next door. He doesn't even have to, it's not even gonna feel like he's moving, you know, even if he did want it, wanted to do sort of like a live and flip, like we talked about last week, but it is the, it is the, Oh, how much do I put down here? Finding that balance. and realizing the pros and cons, right? Because one of the things, like when it comes to putting more money into that actual property, you're kind of locking up that equity. And yes, you do have the ability to take a HELOC out on a property, but it's subject to the current rates. It's less tappable than, let's say, were you to invest that money in a brokerage account. But then a brokerage account doesn't also, it also doesn't come with the most tax advantage status. And so kind of going back to what we led with, with the Celo 401k, If you aren't making contributions to your solo with your employer hat on, which is 25% of your wages is what you can contribute to that up to the 72,000. That's really attractive. If you can offset some of the dollars that you would otherwise say put into a property and get some of the tax advantage status and the ability to invest those dollars for the long haul. 00:14:57 Speaker 1: Especially at that income level. Yes, exactly, dude. Exactly. 00:15:00 Speaker 2: Yes, they're less tappable, but also you kind of want it to be less tappable. But the advantage there is then you've got the additional tax advantage that you would have by funneling more dollars into a property. to a retirement account as well. 00:15:13 Speaker 1: I just want to talk about other people's money for a second too, because he mentioned that. And that is a common phrase you'll hear from real estate investors. They're talking about using other people's money. I didn't put any cash into the deal. I'm using other people's money. And they think that they're like pulling a fast one or something like that oftentimes. And I think using other people's money, that is what you're doing to a certain extent. You're using the bank's money when you take out a mortgage. But there is a reason that we had a a housing collapse right back in 2008. And it was because their borrowers are not being vetted properly. People were getting loans where they didn't really have to put up any cash and there was a lot of risk that the banks took on. And it blew up a whole lot of other people's money floating around, sloshing around. It blew up in the bank's faces. It blew up in the faces of many of those borrowers. So you have to be cautious. And I think when we're talking about down payments, like having skin in the game matters, I think, in terms of how you treat that rental property, but also in terms of how much risk you're willing to take on. And so other people's money sounds good. And when you're running the numbers on the front end, putting 5% down instead of 20% down, Well, the cash on cash return looks better when you put less money into the deal. And let's say you see $ 100, 000 increase in the property value over the next five years. Like, well, I only put 50 grand in, not 100 grand. If I'd put 100 grand in, I only doubled my money. But at 50 grand, I quadrupled it. This is like, how awesome is that? And or maybe it was doubled versus what? Yeah. But that is a really important thing to consider. Yes, the numbers could look better. But then you also take on additional risk. And leverage sounds great until it comes back to bite you on the flip side. And you just, that's why, yeah, it's not just about where are you going to see a better return. It's also about being able, having liquidity and being able to navigate downturns. 00:17:06 Speaker 4: Yep. Yeah. 00:17:07 Speaker 2: It's not just about the cash on cash return. You also have to be able to sleep at night. And there's a whole lot of personal finance experts out there who choose to go with a more sizable down payment. But you got anything else on this one? 00:17:19 Speaker 1: No, that's good. Go ahead. Keep moving. To David, I hope, yeah, I hope that works out for him. There's something really cool about being able to own the property next door and know who's going to live there, have some say over it. I've seen people do that before. It can be a smart way. And I think there are ways that he can do it even more intelligently than if he's really thoughtful about it. And he can even get better financing, right? If he's like, if he's super smart, right, about how he uses that next door property, I think he can do really well. That's right. 00:17:48 Speaker 2: Yeah. And plus, there's just something fun about continuing to invest in a neighborhood that you love and that you know is doing well. You and I both did that multiple times in our old neighborhood when we used to live in town. 00:17:59 Speaker 4: So, yeah. 00:17:59 Speaker 1: Right around the corner. Makes them easier to manage. 00:18:02 Speaker 5: Yeah. 00:18:02 Speaker 2: Best of luck to you, Dave. We got more to get to. Jill, let's take a quick break. And then after that, we're going to hear from a listener who has basically a $ 300, 000 windfall. Talk about robo-advisors. We'll get to all of that right after this. 00:18:24 Speaker 1: All right, Matt, we're back. We have more listener questions to get to. Let's take one now from a listener who inherited some money, but he wants to draw it down strategically. 00:18:34 Speaker 3: Hey, Matt and Joel, first time rider, long time listener. I inherited approximately $ 300, 000 in a beneficiary 401k non-Roth account three years ago. I moved the investments into a more aggressive options with the goal of maximizing growth. As I understand it, the beneficiary account must be fully distributed within 10 years of the original account owner's death. That leaves me with roughly 7 years to deplete the account. 00:19:03 Speaker 1: Here's my concern. 00:19:04 Speaker 3: If I withdraw $ 30, 000 in January, the account could potentially earn that amount back before the end of the year. As a result, despite taking distributions, I'm not reducing the account balance by very much. I understand that I need to empty the account within the 10-year window, and I realized that taking large lump sum distributions could push me into a higher tax bracket. The tax implications could serve me somewhat, but my bigger question is, what should I do with the money after I take it out of the beneficiary 401k? I'm already fully funding a Roth IRA, and I also have a 401A, 457B, and TSP. The combined balance of those accounts is approximately $ 315, 000. I'm currently 46, and plan to work for at least another 18 years. At age 60, I expect to receive approximately $ 1, 300 per month in military retirement benefits, followed by Social Security when I become eligible. My only debt is a $ 170, 000 mortgage at a 3.25% interest rate. Given that I already have substantial retirement savings and am continuing to contribute to tax-advantaged accounts, how would you recommend investing the distributions from the inherited 401k so that the money continues to grow and work for me? Would you favor a taxable brokerage account, additional real estate, paying down the mortgage, or something else? I'd appreciate any advice on how to strategically manage these required distributions while minimizing taxes and maximizing long-term growth. 00:20:43 Speaker 1: Kind regards, Chris. Matt, the clear answer here is Pokemon cards. That's the best choice. Why not? I like that, Chris. 00:20:53 Speaker 2: I like the kind regards there at the end. I felt like we're pen pals at this point in time. Obviously, one of Chris's issues here is that he's dealing with substantial amounts of growth potentially on this money, right? 00:21:05 Speaker 1: Like he kind of led with. 00:21:06 Speaker 2: Man, even if I take out 30K annually, there's a chance that the additional remaining principal growth is going to lead to that or more by the end of the year. And I think a lot of folks would say, oh my gosh, yeah. Sorry, Chris, you've got like the worst problems in the world. 00:21:20 Speaker 1: I wish I had that. Issues, exactly. 00:21:23 Speaker 2: But also be careful what you wish for because this is a beneficiary 401k that he inherited, which means. 00:21:29 Speaker 1: he lost somebody, right? 00:21:32 Speaker 2: And so I'm sure there's plenty of folks out there who are just like, yeah, actually, that's a tough spot to be in because you kind of, it presents a whole nother set of financial problems, not to mention the loss of somebody, right? So you've always got the ability to find other ways to get your hands on money. Like you can always earn more money, but then time that we have here on earth is the most finite resource. And so, yeah, with that in mind, Chris, hopefully we can He didn't even touch on any of that, obviously, but I just wanted to set that up because I feel like it'd be easy for us to be like, oh, Chris has got the big problems here with all this money. 00:22:07 Speaker 1: But yeah, no, you're right. It comes from a real loss, a real problem in your life. Even if it was three years ago. Yeah, and I will say the nature of how you draw down IRAs, inherited IRAs has changed, right? The SECURE Act kind of changed this a number of years ago. And so yes, Chris is required to draw all the money out within 10 years, which did not used to be the case. And that makes taxes an important part of this equation. And so it's worth considering. Chris is right. Like, oh, if I take down, let's say 10% of the portfolio, but then the market growth is 15% that year, I might still, I might be accruing more money, even though I'm drawing that down that from that IRA, which is true. But so like being strategic on that can be, is difficult. And you might want to take something like equal disbursements, knowing that there might be one or two years further down the line where you might be drawing down even more and have a bigger tax consequence. I just wanted to highlight one other thing for Chris, though, in that regard, though, Matt, how I'm not sure if he's planning on taking any time off or something like that, but that is one thing that people do is in a year maybe where their income is down or if they're working less, they might choose to take more out of that IRA in order to reduce the tax consequences. That's absolutely true. Yeah. 00:23:33 Speaker 2: So if Chris has got like a sabbatical year coming up, it's like, oh, yeah. Although if it's with a great employer, hopefully they're still paying you at least for a limited amount of time. But yeah, if the ability to pull more of that money out Within a year that you're not generating a whole lot of income because that's, I mean, he's, he's getting at the heart of it. 00:23:52 Speaker 1: Right. 00:23:52 Speaker 2: And this is why he's got to find a way to get money out of this over time so that he doesn't get hit with that massive spike, uh, seven years from now. And he's just like, oh my gosh, I have to pull the rest of this money out. And I think a lot of what that comes down to is. some of the different retirement accounts that he mentioned. He kind of like went through the alphabet soup of retirement accounts. 00:24:12 Speaker 1: He's got the 401A, 457B. I got the TSP. 00:24:17 Speaker 2: He's got more money coming in in a certain number of years. And then after that, of course, social security, right? He's got all these amazing sources of income. And he said he's contributing to those, but I'm not sure if he's maxing all of those accounts. And so his ability to max, make maximum contributions to those accounts in order to lower your income right now is effective. Like you're effectively like neutralizing your income a little bit, right? You've got this income. It's not like you're saying, please pay me less. Like you're still getting that money. You're just saving it for future, Chris. But you're lowering that AGI that way as you are making some of these withdrawals from that beneficiary 401k. It's not bumping you up to, let's say the next bracket. So there's a way you can be strategic about the income that you are generating. And not just with retirement accounts, but what's one of the other ways you can, if you automize your taxes, you can make charitable contributions. And so something like a donor advised fund, setting that up. And what's so great about, and we've got our friends over at Daffy, we can link to an article where you've written about that, Joel. Donor advised funds are so great because you don't have to decide. You don't have to say, okay, I'm going to go ahead and make like a massive five-figure donation to a nonprofit or something like that, it allows you to make a contribution, but then figure it out later. It allows it to then, you can actually invest those dollars and it can grow within that donor advised fund, but you aren't realizing some of those dollars from an income standpoint. It helps, again, to offset your income for a year where you might see additional income because of these distributions that you're making. That's one of the reasons that donor advised funds are so awesome. 00:26:02 Speaker 1: Yeah, people who are charitably inclined and big fans of compounding, they love donor advised funds. In particular, the cheap, well-run donor advised funds like Daffy because of the fact that they can build up a big nest egg to have an impact in terms of giving. So if that is on Chris's radar, yeah, I agree. That's a great way to help yourself out and help other people too, organizations you care about. And I think the other thing to talk about here, Matt, is He's doing so much for his future, right? He's got the military pension. He's got Social Security. He's doing well putting money into tax-advantaged accounts. I wonder if maybe he's going to have more medium-term goals or needs or actually wants to incorporate higher spending because he can, right, thanks to this inherited IRA. So it's really easy to say, okay, continue to punt everything you want down further down the field and continue to miss out on other things you would have actually liked to spend the money on now. And I think especially when we're talking about inheritance, which is if you're doing all the other things right, like you don't have any credit card debt, you're saving and investing a substantial portion of your income, it's okay to incorporate some of those dollars. And I think especially in an attempt to like honor the legacy of the person who who had invested all this money for their own future to use some of it in the here and now is great. Like when my father-in-law passed away a couple of years ago, we were planning a trip to his favorite place in the world, not my favorite place in the world, Disney, but to honor him. And this is where some of the dollars that he had saved and invested is going. And it's a way for us to kind of honor his legacy and have fun together as a family. So I think Just don't sleep on the fact that spending some of this money might be intelligent. I like that a lot, man. Yeah. 00:28:02 Speaker 2: The very fact that he received this money points to the fact that we may not live as long as we think, you know? 00:28:10 Speaker 1: Yeah. 00:28:11 Speaker 2: And so if we fall into the same sort of, it's not a trap, but it's a certain way of thinking that, well, we're always going to have more time down the road. There's always going to be more time. There's a whole lot of things to consider. Obviously, we don't know the circumstances, but if you are always going to assume, well, no, life expectancies are going up, AI, cancer research, like there's a whole lot to be excited about in particular when it comes to health and longevity, but you can't always make those assumptions. But some practical, not practical stuff, but like he specifically asked Joel, should I put that money in a brokerage account? 00:28:47 Speaker 1: What do you think? I mean, I think the taxable brokerage account is a great place if you are saving a substantial portion of your income for your future already. Let's say he's investing 24% of his income for his future. Well, yeah, I do think in the next four, five, seven years, there might be things he wants to spend money on and he wants to grow that money in the near term. If he's already got kind of long-term retirement stuff taken care of on autopilot, essentially, Which is what it sounds like based on everything he's got going on. Like you said, the Alphabet Super Retirement accounts he's putting money into. 00:29:26 Speaker 2: Yeah. 00:29:27 Speaker 1: Then why not a taxable brokerage account? Because the goal here is not maximum tax efficiency. It is maximum ability to grow and use that money on the timeline you want. So the taxable. brokerage account, I think, is given how much he's doing in some of those other great accounts, they're wonderful. And some of the money he's got waiting for him in the future with the military pension. Yeah, I think taxable brokerage account is probably a great place to put a lot of the money that he doesn't need or want to spend today. but wants to have at some point down the road. Totally. 00:30:02 Speaker 5: Yeah. 00:30:02 Speaker 2: I mean, there's only so much money you can put in those retirement accounts, right? And so unless you're planning just to sit on, I mean, he's not talking about just sitting on that money as cash and as savings. So, I mean, yeah, the brokerage account is going to be your new best friend, I think, Chris, and you may not have invested a whole lot of money within that previously. But yeah, I think you're going to be doing a whole lot of investing there. I think that's smart. You mentioned real estates. I mean, you can do real estate if you want to. I would only do that if you already had an interest in it, right? 00:30:35 Speaker 1: Yeah. 00:30:35 Speaker 2: And I'm afraid that he mentioned it because he's heard people talk about real estate and they're like, well, you could always do real estate. You know, it's like, well, you could always do gold. Like, it just seems like one of these things that's kind of floating out there. And I'm not trying to at all equate gold and real estate. But it's just, I think, one of the default sort of talking points. If you're interested in real estate, Chris, if you are handy and might want to do some renovations, if you like people and want to manage a property, then go for it. 00:31:02 Speaker 1: Absolutely. 00:31:03 Speaker 2: But only, it might actually, it might even be something he's saying that he's planning to work for the next, like 16 years or something like that. 00:31:10 Speaker 1: Yeah. It might be a nice little segue transition into different work. Maybe you're like, you know what? Maybe I'm not going to continue. 00:31:17 Speaker 2: To work at my current job for forever. So maybe that could provide an outlet for me that I would really enjoy. If so, I'm fine with you dabbling with that, but don't get into it because you think that this is going to maximize those long-term savings. I think that's, don't, yeah, I wouldn't do that. 00:31:34 Speaker 1: If I were you. Yeah, I agree. I think it's just, It's apples and kiwis or something. I don't know. They're very different things because you're talking about something passive versus something active. And so you have to answer all those questions as to whether real estate makes sense for you, the way you're wired and for your interests. And also don't forget to set aside money to pay for the taxes you're going to incur, right? When you pull money out of that IRA. So I just want him to be prepared, right? For the higher tax burden come tax time. That's true. 00:32:05 Speaker 2: While we're still talking about... we were just talking about real estate. His last one that he asked about was what about paying down the mortgage early? 00:32:10 Speaker 1: What do you think about that? I mean, what, three and a quarter? Like, no. 00:32:14 Speaker 3: Never. 00:32:14 Speaker 1: I would keep that thing forever. I would rather stash money in high-yield savings accounts, the CDs, money market accounts right now than pay down my mortgage that was at three and a quarter because that at least gives you the liquidity, the flexibility. Instead of paying down the mortgage, yeah, you don't have a monthly mortgage amount, which is awesome. But is it worth the trade-off of something else comes along, a rental property that's too good to pass up and you paid down the mortgage and now you can't buy that rental property. So I just don't love the idea unless the other option is something really dumb like buying a jet ski and then paying off your mortgage is great, right? But I think for most, People who listen to How to Money, they realize they're going to make, hopefully, a better decision than paying off their mortgage. 00:32:59 Speaker 2: Well, Joel, what if whoever he inherited this 401k from was a lake sports, what do you call it, lake craft enthusiast? 00:33:08 Speaker 4: Yeah. 00:33:09 Speaker 1: And if so, then like, I don't know, man, jet ski could be like the best thing ever. I've already given him permission to spend some of this. Like, go for it. And if the jet ski lights you up, yes. But if it's really like, I'm going to buy the nicest jet ski of all time. And it's going to go unused or something like that. And I just think usually we're not talking about a tradeoff or a dichotomy that's that strong, right? Completely opposing forces. But I think for some people, it's like, well, if I don't pay off the mortgage, I'm going to do something stupid with the money. And if that's the case, then pay off the mortgage. That's right. 00:33:42 Speaker 2: All right, Joel, let's hear from a listener who's in her 20s. She's trying to do the smart thing with her investing dollars. 00:33:48 Speaker 1: Hey, Matt and Joel. 00:33:49 Speaker 4: Hello. 00:33:50 Speaker 5: Thank you guys so much for the great podcast. I have really appreciated. I've been listening for over a year and I just appreciate you guys are very non-judgmental when it comes to listener issues without any shame and with a lot of encouragement. So I just appreciate that. I am 29 years old. I live in Brooklyn, New York. I would say I'm in money gear seven. My emergency fund could probably use a little bit more cushion. It's maybe like at three months of expenses. So trying to get it out to six, but I don't have any debt. I make around 200 K per year in healthcare. I have about 30K in a 401K, another 30K in a Roth, and then 70K in an IRA that I rolled over from previous jobs. So that's all retirement. And then I also have about 100K in a brokerage. My biggest question is, what do you think about the Vanguard digital advisor in my situation? All of those Accounts that I spoke to you about, except for the 401k, I'd all have those kind of managed by the Vanguard Digital Advisor. It's not allowed to invest in mutual funds. It's only allowed to invest in index funds. They do a little bit of a risk assessment and I've set it to risky. For my brokerage, I've set it to kind of a vague goal of 250k by January 2035. Because I guess that's when I might want to buy a house. My boyfriend and I are very happy renters right now and want to stay in New York long term. The advisor fee is about $ 20 per quarter. There is also some tax loss harvesting. But I've heard differing things about the effectiveness of that. Basically, I would love to know what you think about digital advisors, Vanguard Digital Advisor in particular, and what it has done in each of my accounts. Thank you so much. 00:35:59 Speaker 1: All right. That was Hannah. Hannah, by the way. 00:36:02 Speaker 2: That was Hannah, indeed. And the first thing I think we should do is up our judginess. Because I think if folks aren't feeling bad after they listen to How to Money, perhaps we're not doing our. 00:36:13 Speaker 1: Job, Joel. 00:36:14 Speaker 5: Yeah. 00:36:15 Speaker 1: If you bought... a jet ski this year, I want you to know I'm really disappointed in you. But it is so true, Matt, that I feel like that adds nothing. And in fact, it detracts because so many people, they have grown up in an environment where they have been shamed by their money decisions. And then there are, you know, personalities in the money space who will heap more onto people, making them feel like idiots when truly what we talk about here, personal finance feels like another language to the average person. And they didn't grow up hearing about it. It's like growing up and being like, hey, how come you can't speak Norwegian, you idiot? And it was never taught to me. How would I know? I'm not surrounded by people who speak Norwegian. Why would I know how to speak that language? And so I do think there's a lot incumbent on us as individuals to learn the ropes, but that's what we're here to hopefully help with and not make you feel bad that you didn't learn them already. Yeah. 00:37:07 Speaker 2: That being said, I think, I mean, there's obviously a place in any media where there's people who are, I don't know, I don't want to This isn't an excuse for people being like total jerks, but there's a certain level of passion. And it's not that we don't care, but there's also so many different paths you can take, right? Like I'm not going to get super judgy and super try to make somebody feel bad just because they've chosen to take another path. 00:37:33 Speaker 1: Does that make sense? 00:37:34 Speaker 3: Yeah. 00:37:35 Speaker 1: So I don't know. I feel like we're just way too normal. 00:37:39 Speaker 2: In order to have like a super extreme hot take on something when someone's sharing what it is that they have done. done with her money and certainly what, what, what they want to do with her money moving forward. But yeah, but yeah, Hannah, in her case, do you have anything else on that before we talk about it? 00:37:54 Speaker 1: No, just let's start talking about advisors and advisors. What'd you say? And digital advisors specifically. 00:38:00 Speaker 2: Well, so that's what she's asking about the Vanguard digital advisor, which is essentially a robo advisor. This is a product that Vanguard offers. 00:38:09 Speaker 1: It is a 0.2%. 00:38:09 Speaker 2: Uh, fee, uh, And they discount some of their other expenses that are already baked into some of the products that you're investing in. So it takes it actually from a 0.2% to about a 0.15% fee, which is pretty nice, you know? But the question is, does she actually need to be paying for that robo-advisor, even with it being a brokerage, a company who we like very much, Vanguard? I've got so much of my money with Vanguard and... People might say, well, why would you not go with Vanguard, Joel? Don't you want to support these guys? 00:38:48 Speaker 1: Well, I think you should typically go with Vanguard or with Fidelity or with Schwab when you're investing. And then all three of those low-cost operations, because of the likes of Wealthfront and Betterment, they have launched similar kind of digital robo-advisor stuff. Are they as good as Betterment? I don't think so. It doesn't seem like they're quite as good because Betterment was kind of built from the ground up with that. And when you look at the reviews and how people feel about some of these digital advisor services, Vanguard seems to be the best and the cheapest. But even still, so much depends on what you're trying to get out of it, right? So I think for a lot of people in their 20s and 30s in like the extreme wealth building phase of their life, paying for an advisor is just... just not necessary. It's not all that helpful. And yet at some point in your life, it probably becomes very worthwhile as the stakes are raised, the tax decisions become more complex, and you've got a lot more money to deal with and a lot more need to utilize that money like let's say you're saving or investing for your child's education and you're saving up to remodel your home, right? The stakes just get raised and we're talking about bigger numbers and utilizing your money more than just investing in low-cost index funds to get to the place where you can do that stuff. So I think it's always worth questioning the premise and I don't know how much it's been helpful to Hannah. She mentioned that it's not very expensive. You talked about that too, Matt, which is true, but How helpful has it been? And has it been worth the money? Has it been worth the trade-off? What I read about these digital advisors. And then once you get to a certain threshold, you get help from actual advisors too at Vanguard. Is when you're actually talking to a human, often it's a bunch of different humans that you interact with. So you're not talking to the same person. 00:40:36 Speaker 2: You're talking about relationship or specifically a lack of relationship. 00:40:40 Speaker 1: And understanding in that case. So I think that it's just... rarely worth the additional expense, even though the additional expense is minimum. That would be my hot take. Yeah. 00:40:51 Speaker 2: Well, and then that additional, there is a literal additional expense because if you want the actual, it's the Vanguard personal advisor, that's when the price goes up to 0.3%. And, you know, it starts taking a bigger bite. If you're looking, you're like, oh, well, I'm not getting as, I'm not receiving the kind of benefit I thought I would be receiving from the digital advisor. Let me up the, and then, I don't know, it's sort of like the gradual, like, oh, all of a sudden. I'm getting all my groceries delivered to me from Whole Foods when I used to be very happy with Aldi, right? Like there's a continuum. We've talked about them before doing the Amazon thing, how they get you in the door. And I think that's one of their strategies, Whole Foods specifically. I'm drawing on something from like three weeks ago. But yeah, that's something to keep in mind as opposed to, and I love that you said with Hannah specifically being in the wealth building stage of her life. And it is so easy to just... Set it and forget it. As our friend Nick Maggiuli, also in New York, as he said, I think he's still in New York. Is he still in New York? 00:41:49 Speaker 1: Yeah, he is. Nick, just keep buying. Yeah. 00:41:53 Speaker 2: Is that what he says or does he say just keep investing? That was the best-selling book, Matt. That was the name of his book. And when you are 29 years old, you just continue to sock money into VU, 0.03%, talking about expense ratios here. If you are interested in investing in the biggest 500 companies here in the U.S., Or if you don't want to go that aggressive, you can tone it down just a little bit. Is it VTI, which is Vanguard's total stock market ETF? 00:42:25 Speaker 1: But that's all you need to do for the next seven, eight years. Or VT. VT, if you want the international stock exposure to. 00:42:34 Speaker 2: But she said she's slamming it all the way onto the risky side because she knows that she's got the appetite for it. And so I think I'm willing to say, if you know you've got the appetite for it, I think you can also cut the digital advisor free and just let those additional dollars compound over the next nine years before you're looking to buy a home. But it might be worth reevaluating. The reason I said seven or eight years, because you might want to start reevaluating and pulling some of those monies into either a less risky investment, if you're getting serious about purchasing a home at that point, or even starting to set some of those dollars aside for the actual down payment. 00:43:13 Speaker 1: Yeah. And I think, too, when you look, there is a discrepancy between what she's got in her taxable brokerage account and what she's got in her retirement accounts. And I would love to see those retirement contributions ramp up a little bit. It would, again, lower the current taxation level, or you could put more money into a Roth account, pay the tax now and never pay the tax again. I think... Saving for the house is a great goal. Just don't do it at the expense of funding your future retirement as well, because at the age of 29, you've got a lot of years for that to run. And I also just want to say that the Vanguard, when you look at just the numbers and you think, man, once you get up to that personal advisor from Vanguard, the price is pretty good. 0.3% is kind of all you cough up, right? To be able to have the privilege of an advisor. on working on your behalf. But I will say, is that the best way to go? It depends on how, what kind of advice you want and need and how much handholding you feel like you need and how complex your situation is because oftentimes those advisors are working with 200 plus clients, which means your individual attention is greatly diminished. And if you go with a different advisor, we like the platform WealthRamp because They've got thoroughly vetted advisors who work with fewer clients. And so would it be worth paying more to go with an advisor there? Well, if you need more individual attention, probably, right? And so, yeah, just because the price is less, you have to think about the trade-offs and what you actually need for your situation. But for right now, at the age of 29, with solid income, I feel like Hannah can hit these goals that she's got for herself and maybe even exceed them. without the help of Vanguard's digital advising service, I think she can do it on her own. That's true. 00:45:07 Speaker 2: I think she could even do some of that tax loss harvesting on her own as well, because that's something she asked about. And I will say that that is something I am looking at more and more as I build up more wealth within a brokerage account, thinking through, oh man, how much would tax loss harvesting, how much would that have saved me? Not at this point in life, not from a capital gain standpoint, but from, which is nice when the time comes to sell some of these equities and whatnot, but from the offsetting of your income, being able to do that, essentially like a potentially perpetual $ 3, 000 deduction of your income, like forever. 00:45:46 Speaker 1: And then being able to. 00:45:48 Speaker 2: Roll those losses forward. It's called the ordinary income offset And so, you know, as you continue to build a larger little nest egg there in your brokerage, that might be something to consider more. It's something I'm considering a bit more too, but in the past I've done that myself. So when the market's tanked, I've sold, buy something that avoided the wash sale rule. And I'm like, all right, well, I was able to harvest a ton of losses, right? Just right then and there by myself. 00:46:17 Speaker 1: And the automatic nature of that through a service like Betterment or Vanguard is nice if you don't want to pay attention to the details. And it might actually offset the cost of the service. When you look at the numbers, I don't know what vanguards are, but Betterment says that a huge percentage of the people who get a Betterment account and have a brokerage account with Betterment, they do really well by, they actually more than pay for the fees that Betterment charges through their tax loss harvesting and how much they're able to save in taxes. So that is worth considering. Totally. Yeah. 00:46:49 Speaker 2: So on that note, if someone's listening and they're just like, oh, tax-loss harvesting sounds super cool and you've only got like a Roth IRA, do not get this for tax-loss harvesting because you're not harvesting any losses within your tax-advantaged retirement accounts. This is only within a brokerage. And I think it's probably some of those higher dollar amounts. I got a feeling for a lot of listeners, they can start paying a little bit more attention to it. when they're starting to hit that 100K mark, which, in this case, Hannah is. But, yeah, we hope that gets you pointed in the right direction, Hannah. Joel, we've got more to get to. We might have time for two. Definitely for one more. 00:47:26 Speaker 1: Let's do both. You want to do both? 00:47:28 Speaker 2: All right, let's take a quick break. We'll get to both of those right after this. All right, buddy, I'm going to cut straight to it. Respect our listeners' time. We've got a Facebook question of the week from Josh. 00:47:45 Speaker 1: Hi, everyone. 00:47:46 Speaker 2: My wife and I are both 39 and in money gear seven. After years of making extra mortgage payments, we turned our 30 year into a 12 year. We have no other debts and our credit cards are paid in full each month. We plan to celebrate, of course, but we're also thinking, now what? Is there anything we should be mindful of? I have my eyes on a new slate. That's the electric little truck, modular truck. I am saving up before the release. We don't have any debts, including student loans. We max out our Roth IRAs with Vanguard, grabbing the matching contributions from our employers. 00:48:19 Speaker 1: Okay. What you think, Joel? Gosh, they're doing everything right. And to be mortgage debt free, especially in less than 15 years is incredible. 12 years to pay off your mortgage is amazing. It sounds like that was probably a huge focus for them. I don't know how long they've been maxing out their Roth IRAs, but if they've been doing that the entire time as well, that's fantastic because that would mean they probably have somewhere in the neighborhood of 400 grand, I would imagine, inside of those Roth IRAs, Matt, which is tax-free money for retirement. So I think maybe the next thing I would consider, and I love that he's looking to buy the slate. I think that's a great buy. I think that the Econobox EV, yes, with I think you have to pay extra to get a radio in it, which is awesome. So You and I had both signed up for the pre-release of that, but I don't think either of us are going to buy it now, but I still love that it's coming and I would love to test drive one and I can't wait to see him in person. I think the other thing I would recommend is to consider going above and beyond just getting the match from your employer in the retirement account. So this could, yeah, reduce current taxation. It can build up more money for your future. If you don't have a mortgage payment, at least put part of that into investing for your long-term future. I think that's a smart move. 00:49:42 Speaker 4: Yeah. 00:49:43 Speaker 2: And I mean, I like that you're celebrating, but then I would encourage you to just dream big with your, you said you, yeah, him and his wife. Cause he's like, I'm, you know, I really want the truck. So I've been saving up for that, but like talk with your wife and kind of like, like think through what amazingly cool stuff you, the two of you could do together, right? Like, is there a business that you've wanted to start? Is there, you're clearly great with your finances. Is there a way you could pay it forward and help people in your own community, in your own city? Maybe they're like, you could literally start, use your additional funds and maybe the time that you have to fuel a nonprofit. 00:50:19 Speaker 1: There where it is that you live. I don't know. 00:50:21 Speaker 2: I just think that there, there's some really cool stuff. It's certainly fun. to celebrate by getting a new ride. I've got nothing against that, but don't limit it to just some of these things. It's only the financials, I guess. I think it's worth kind of looking beyond that. Or to just consumption and to just serving yourself. Like there are ways that you could, now that you don't have a mortgage, really turn it on, turn up a couple notches of to serve others, which is really cool if you're so inclined. But yeah, I would love to see him investing more paying cash for the slate. And then beyond that, I love kind of what you're, what you're, the barrier poking here, which is to say, like, think a little bit more deeply with your spouse about where you see yourselves in five, 10 years, the how to money, money mission statement. We should link to that in the show notes, like answer some of those questions. I think that'll help you put your, put your finger on when it's less of a, we don't have enough coming in. How can we barely get by to fund the accounts we need to save enough for retirement? you're not in that place. And so you have a lot more choices at your disposal. You want to, I think, be more introspective and have those deeper conversations with your spouse in order to arrive at a place where you both feel comfortable. And you may not know what that is, and it might take a while, right? Going back to David at the beginning, he had the opportunity to pounce on this house. It wasn't something he thought would happen, but he was able to be and he put himself in a position that allowed him to pounce on And I want you to be in that position when the time comes as well, Josh. Joel, next one is from Anonymous. I might be over the Roth IRA income limit this year. Is a backdoor Roth worth it? 00:52:02 Speaker 1: What do you think? Well, that means you're making a lot of money. Anonymous, well done. Is it worth it? Yeah, probably. 00:52:12 Speaker 2: Yeah. 00:52:12 Speaker 1: All right. Joel says yes. I say sure. Yeah. I think so. I think, again, I mean, we're getting to this, and I feel like this comes up more and more on the show these days, is how well have you been doing? If you have been crushing it in terms of paying off a mortgage or investing for your future, are you just pushing more money to the far, far off future? That really is unnecessary. I think somehow to money, listeners are over-saved. They're over-investing. And you could think of that as just a great thing. I'm letting compounding work for me. And- We could use Warren Buffett and Charlie Munger maxims all day about the power of compounding. And there is a lot of truth to that, which is why we want to take advantage of it. But it's also possible that you could be investing too much. And especially if you don't have clear-cut goals about why you're investing that much. If you're not super into the fire thing and you're like, oh, I think I'm going to work for 30 years because I like my job. As opposed to blindly investing without really thinking about why it is that you're doing it. 00:53:11 Speaker 2: Yeah. 00:53:11 Speaker 4: Yeah. 00:53:12 Speaker 1: Yeah, so you could take advantage of that vehicle. It's essentially an IRS approved way to get money into a Roth, even if you make too much money, which is cool. And if you want more money shielded from future taxation, which I think is wise and Roth is a great vehicle to have, I think probably, I mean, this again was a very short answer with very little, or a very short question with very little in it. For most people who have that kind of money and want to save and invest more for their future, yeah, I think the backdoor Roth is a great way to go. Yeah. 00:53:42 Speaker 2: At the same time, because you've heard us continually beat the drum of Roth IRA is awesome, Roth IRA is awesome, it's worth thinking through tax liability diversification, which is maybe it's great to go ahead and pay some tax now. Maybe it's great to go ahead and pay some tax later, right? And so the ability to not knowing exactly where tax brackets are going to go and not necessarily knowing what your income is, is going to be by the time you start drawing down on your retirement as well. So it's tough to know the future. If we knew the future, we could tell you exactly what it is that you should be doing. But it's definitely something worth considering. That's the next podcast, How to Predict the Future. 00:54:22 Speaker 1: We'll teach you. Yeah, we should do that. 00:54:25 Speaker 2: But since you and I did not share a beer during this episode, that's going to be it. 00:54:30 Speaker 1: Did you finish your coffee? Yeah, how was yours? It was great. And so. 00:54:34 Speaker 2: No need to worry about the mixing of espresso and milk. 00:54:40 Speaker 1: There we go. Well, I guess I kept doing that. Could you hear the ice? 00:54:44 Speaker 2: I heard the ice a little bit when you take a sip, yeah. Is that distracting for listeners, do you think? 00:54:48 Speaker 1: It's a little ASMR. I think they're into it. Oh, okay. Crank it up, guys. Here we go. Sounds good, right? 00:54:56 Speaker 4: Yeah. 00:54:59 Speaker 1: All right. That's going to be it for this episode of How to Money. We'll see you back here. We'll see you on Wednesday. 00:55:03 Speaker 2: Joel will be talking to one of our friends in personal finance. And yeah, reach out to us. Send us your voice memos, howtomoneypod at gmail.com. And if you haven't, if you're like, oh, I didn't get to see the espresso with the milk that Matt was talking about at the beginning, head over to our YouTube channel. How to Money Pod is the channel. for a little more of the show and tell that we do over there as well. 00:55:27 Speaker 1: But, buddy, that's going to be it. Next week, stay tuned. Matt's going to have hot pink glasses, so that'll be really fun. That's right. But that's going to be it for this one. Until next time. Best friends out. Best friends out. All right. Good job, buddy. Catch you next time. Laters.