Space Telescopes, Sunflowers, and Financial Gardening | Jesse Cramer | 105
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Going to the sunflower metaphor, I had this image of my head of, imagine that we're looking in our garden, and we have these nice, fully grown sunflowers, which, if you don't know, they sprout, they can be at eight, ten feet tall. And the next, the sunflowers, we have some corn, and so we have these fully grown sunflowers kind of towering above us. And next to IT, the corn blooms a little bit later will say, so the corn is maybe only half grown, and there are any years of corn yet on the corn stocks themselves. And now if I were too cornal invest in these crops in some way, if I were to say, well, which one's going to do Better, which ones has more gross potential in front of IT?

This math suggests .

the slice that is NVIDIA will be bigger than the pie itself, and we've all eat an enough pie to know that.

That doesn't make sense. Yeah and I can say that I definitely don't like any one stock, including in video, taking up too much of my portfolio, typically ten, maybe twenty percent, if a the way. But for the most part, if i'm to your point about seeing this peak or the stocks that just continue to go up and has all this compound and we know that is gonna level out at some point because I can't be bigger than what is a part .

of once you get to the point where you're pretty comfortable with your finances, you really need to pit IT and start thinking about all the other stuff because that's really what's gonna most important throughout your retirement and it's what's most important in life, right? I don't think any of us want to be people who say money is the most important thing to me, above relationships in my health and all that stuff.

Welcome to catching up to fy, a podcast on mindset, money and life for late starters of any age on their journey to financial independence. I'm bill, and i'm a late starter.

I'm jackie, and i'm also a late starter. And where your host, we're here to help you on your journey to financial independence. No matter where .

you're starting, we're going to talk to experts of the light starters and .

explore topics related to our mission. Join us as we catch up to fy together.

Hello, and welcome back the catching up to five, jacky. I was just out of town this weekend, and we had so many things happening going on. My son graduated and my wife rang the bell saying freedom from cancer. So this has been a great weekend. We've been busy, but i'm excited to talk to Jessie cramer today.

Yeah, I am to and bill, I am so happy for you and your family, son, that just graduated in our patient. SHE is doing great SHE ring the thank you so much for sharing that with the community.

If you are in the facebook group, then you probably saw that bill will openly share that his wife had got in through cancer successfully, and we cannot thank him enough, so find that post and give him an applause and congratulations to him and his wife for getting through a tough time. So yes, the show goes on, and I can tell you your wife was so supportive even when he was at feeling well of the show. And what we're doing here with catching up to fy.

And we are, of course, excited for our next guest. We weren't super familiar with his work, but boy, we went down the rabid hole and he's pretty amazing. So me introduce him.

Our guess the day is Jessie cramer. He has a nc for using everyday experiences to make personal finance accessible for the average investor. He is the founder, writer and voice of the award winning the best and blog and podcast.

He left a career as a mechanically and arrow space engineer. Woohoo, that's big stone right there. To work with lies.

As a judiciary fee only financial planning farm, he uses those valuable engineering skills to simplify the most complex financial topics into fund explanations for his clients and his audience. He lives in rod chester, new york, with his wife, their newborn baby. I think he's lesson a year old, right?

Jessie, and an adorable australian cattle dog. Jessie, welcome the action up to five. Jack, bill.

thank you so much for the invite. Thank you that very generous introduction, bill. Such great news about your family. And yet, to answer your most recent question, jacky, our baby girl just turned to eleven, two weeks old, so it's A A very fun time in the crammer household.

That's a baby baby.

I think we all have these great personal stories, and the thing about them is life throw a curve balls. And the human race is incredibly resilient. Late starters are incredibly resilient.

I mean, we take these things head on. And late starters have life experience as one of their superpowers, going into catching up to five. But without further to do, we're going to talk to a rocket scientist today. You ve got to tell us a little about your back stories so we understand who you are, whether to be the money story or the professional journey in the transition from rocket science and space telescopes to financial planning, we want to hear IT. Well.

thank you guys. And yeah, that is kind of funny, because rocket science is the easy introduction. I think a real rocket scientists would say, no, no rocket scientists to work on the propulsion systems of how things get out into space, whether what I was doing was working on the actual payloads, the special equipment that a rocket would launch.

In this case, just like he said, bill, satellite telescope systems. So my backgrounds in mechanical engineering, and I spent seven years after grad school working as a mechanical engineer. So it's most my twice, right? But about midway through that period, I realized I didn't really know what I should be doing with my money.

I kind of a hit this problem that I supose many Young or older adults face, which is, I have some assets, I have some income. I know there are certain smart things I should be doing. There are probably some smart things I should be doing that i'm not even aware of.

And regardless of how long those two lists are, I have no idea how to prioritize those lists. So that was kind of my empathy of learning more about personal finance, learning more about investing. How do I prioritize the smart st.

Things I should be doing with my money. And over time, I did a lot of the same things that our listeners right now are probably doing. I listen to podcasts, I read blogs, I read books.

I just devoured as much information as I could started sharing with some of my colleagues and some my coworkers at the engineering firm. Just little tips and tricks. Hey, here's what i'm doing in my four one k and here's the reason why.

And some of them encouraged me and said, Jessie, your excEllence make sense to me. You're pretty good. Teacher, why don't you start writing some of this down? And that was the birth of the best interest of blog, fast ford.

A couple of years i've always enjoyed my parents were teachers. So i've always enjoyed teaching, sitting in front of a room and teaching. And to some extent, I sit in front of the microphone and teach now through the best interest podcast, which started a couple years later. And then fast forward to let's see, twenty, twenty one about three years ago from one we're recording right now, the engineering job was good, but not great.

And while I was still Young, and at the time unmarried, and at the time without a child in my life, I said, why don't I take a chance and see if I can pursue this passion of teaching people Better financial planning, smarter things that they should be doing with their money? And so I took a big leap and change careers and write, as jacky mentioned, in the intro in network for A A flusher, the only firm here in rocha, new york, and absolutely love IT. No.

look back or you call is the best interest blog in podcast. And that has its origins with Benjamin Franklin in right?

IT does. IT does. It's a bit of a upon play on words. Writing is fun to me. My mom was an english teacher, so I I enjoy just fun writing.

So, yes, Benjamin Franklin said, an investment in knowledge pays the best interest is so true, right? So here I am writing about investment content anyway. And I believe that sharing intelligent content pays dividends in our lives.

And then, of course, if we are investors, we hope to achieve best interests are good interests, good dividends. How are you want to say in your own investing career? So there's a bit of a multi layer pn or double meeting there.

Now it's interesting because your audience over labs with our audience, who are you speaking to and why should our audience go dive into your blog and podcast?

Yeah I think my typical reader or listener is someone who's probably between maybe say like thirty and sixty, which I understand is a pretty wide ae range. But IT can vary from my peers and thirty four, my peers who are kind of at the first pivot point where they say I understand a bit of the basics.

But now I need to understand things on a slightly deeper level all the way up to p retirees who are very serious about, hey, retirement is right there on the horizon. And I need to get my financial planning stuff figured out. My reiters listers, they tend to lean towards DIY.

They might be familiar with the F. I. Movement pretty deeply, or they might not be.

They might just be like A A fifty year old DIY ire who isn't necessarily interested in the R E. Part of fire, but they really interested in the F I part of fire. And they might be working with A C fp. Or not. But either way, if someone who leaned more towards the DIY E A track.

well, just say, I love that you enjoy writing and you have fun doing IT to me that comes through and reading a lot of your blog post and listening of podcasting. I think that sort of something that are listening ers can take away that move towards something that's fun. You had great career in engineering, and you shifted to do something that was simply more fun that you still get paid for doing. So for our first topic, I like this article, is kind of timely, is kind of a fun topic, right? Well.

oh yeah, well, we across the red line a little bit here, but trying be down the medal, so to speak, because we're going to talk a little about politics and the market and data.

Let's not forget, these are data points that we are looking at. okay. IT doesn't reflect any kind of any personal views thing like that, but I find that interesting when there's actually research out there that kind of shows some things that become very emotional force.

So the title of that article that we're talking about is, is there a correlation between whose president and your portfolio or that's the subject. So talk to us a little bit about that, Jessie. Does the whose president have anything to do with our money or portfolio o specifically and investor .

yeah IT is it's such an emotional topic um probably more than ever early st more than ever in my lifetime. You guys remember maybe further in the past and just looking at political history, I mean, they're certainly been device of times in at least U S. history. But I was sitting there in july and IT was the weekend of the assassination attempts, which is what a worlds, what a crazy thing to have a occurred.

And then that week, right after the weekend, wears like, what's the market going to do this week? And just imagine if someone had asked the average american or the average list or right now, and they had said, okay, the former president and the current presidential candidate was just shot in the ear in an attempt his life. What do you think the stock market is going to do on monday? I have a feeling people are said the stock Marks are going to go crazy.

I don't know what direction, but it's chaos is terrible. The markets going to go crazy in natural. I think the market changed. I'm just looking here, went up by point to eight percent that monday, a very Normal matter of fact, on note, worthy day in the market.

And the lesson in the takeaway is that in that particular situation of the assassination tempt, just like in many other political situations, the market does not really care about politics persae. The market might have long term IT might care over long periods of time about economic policy, about corporate tax policy, about trade policies like those things can affect the market over long enough periods of time. But in general. The market doesn't care about short volatility in politics.

And when we look at there's a couple charts in this article and you guys said you kind enough to link the article in the show notes when you actually look at how the markets performed over the past fifty hundred years and you compare that against not only whose the presidential office, but also which party controlling congress and those kind of things, it's very hard to find any sort of pattern in that data that would suggest to that a certain party is more beneficial than the other. So long story short, the idea is that it's okay to care about politics deeply ly on a personal level, and to care about america, to care how. That's totally fine. But I would just encourage anyone listening to do your best to separate your politics from your portfolio and just let your portfolio ride, don't mix and match the emotions between those two pee words.

Now is a matter if you have one party as president and one party dominating congress or divided, how does that work? Because we think the president matters, we think congress might matter, but does not matter if there's a discordant political parties involved in both arenas.

Yeah, there is a slight and i'm thinking back to a third data set that's not in this particular article, but as of a couple years ago when I wrote a slightly different article having concordance, right? So having the party in congress also be the party of the president, republican and republican or the and democrat is Better than if there's a democrats in the White house and every republican control congress.

Advice, vera, you'd rather have them aligned. But at the same time, bill, again, i've got a little bit of a math background and I said to myself, we're talking about twenty or twenty five four year periods over the last hundred years, twenty five da points over the last hundred years. Is that enough data to confidently sit back and say, yeah, we know exactly how this is going to work in the future? It's probably not.

It's probably not. So again, if something happens this november and we have presidential candidate Harris elected, but republicans control congress or vice versa, that's not going to affect my views on investing or microphone o at all. So we shouldn't .

go to cash before november, faith, right?

We shouldn't go to cash bill, but we should should go to the voting poll. So whatever you think, whatever your views are cast that vote at the voting polls, we all can do that period. And no matter how IT affects our report folio, make sure you test your but yeah, it's a political rear.

So honestly, everyone's thinking about IT. It's all over the news, everything you listen to our friends, our family. So we thought I was worth kind of chatting about a little bit and kind of level settle some things there. So we enjoyed that article a lot. Now we're gonna get into another article that's really a big thing that we talk about in our late sort of community, and that's about having two conservative of a retirement and will dive into that right after this break.

This show is sponsored by boomer benefits, one of the nation's leading family owned medicare brokers. Jacky, I am so confused about the alphabet soup and medicare. Oh my god.

I am not the only one. And you know, i'm of financial professional, and I learned out about the stuff, but IT is still confusing. But the truth of the matter is, most of us are close enough to care about medical care where we have to figure this stuff out, no matter how confusing IT is. So woman benefits here to educate you and to guide you every step of the way when you're ready to make that big decision.

So with buber benefits by my side, i'll receive personalized medicare guidance tailored to my health and my financial needs, all in no to cost to me.

Yeah, yeah, bill. And they can help evaluate which medicare options are best for you based on your unique situation. And if you're already on medicare, they can review your current plan and make sure that is the right fit.

So let's visit bar benefits that come today and let them help make informed decisions about our medicare coverage. gas. Jackie, this is a guy, and i'm definitely going to do this.

That's right. They are the best.

R I, jackie, we're back. And this article, the crushing cost of conservative retirement planning was fascinating to me because I tend to be a little bit more on the conservative side. You tend to be a little bit more on the aggressive side.

You're retired. Not so, Jesse. There's similarities between rocket science and retirement planning.

And you use the model of a fifty year old with one billion dollars in a spend of one hundred k and you take us here through three different scenarios and you asked the question, could the cost of conservatism result in decades of unnecessary work? That's decades. Can you take us through that article, please?

Yeah, absolutely build. Starting with the first point or the first question you asked, which was, what are these similarities that i'm referring to between my old engineering career and retirement planning? And the idea there simply is that makes sense. We have to essentially make certain assumptions when IT comes to these plans. And to some extent, we want to be conservative in some ways or applies and factors of safety, as an engineer would say.

But in engineering, when you apply different factors of safety, when i'm worried about what's going to happen to this rocket in launch and i'm worried what's going to happen to the material properties and what if this and what if that those factories of safety, they all multiple with one another, and that leads to an ultimate or a final total factor safety, if you will. So if I have a fifty percent factor over here and one hundred percent factor over here, and another hundred person over there, they don't add, they multiply, they compound, if you will. And your ultimate, your final factor, safety, tends to be quite large when you stack up everything on top of each other that way.

Well, in retirement planning, we could do the same thing. I don't think we should, and i'll explain why. And the idea here is, well, what kind of investment returns do you want to assume during your retirement? What kind of inflation do you want to ask you? What will tax rates be? How will social security be there for you?

If you're not careful, you're going to make potentially conservative assumptions in all these different factors, and you're going to end up with a view of your future retirement reality that adds are is far, far, far too conservatives stewed because you have stacked up all these conservative factors against you. So now seg waiting bill into that example that you eluded to, which right, I looked at what I just thought was a very typical fifty year old private re, which, like he said, I think was what a million dollars in their portfolio and certain retirement goals. And I said, let me look at sources, current investment returns, their future expenses, inflation and tax rates.

Let me look at those five variables and let me dial them all the way, conservative. Then let me tell them back until probably a too aggressive says, and that then we'll dial them somewhere in between. And at each one of those dials, conservative to aggressive along that spectrum, I said, when can this person safely retire and applying a lot of conservatism, although I will say it's the kind of conservatism that i've seen and you guys have probably seen read IT in our facebook groups like you see, people will make these assumptions in the retirement plans.

So it's not like i'm being ridiculously conservative here. This hypothetic retirement that I looked at age fifty. If they're being really conservative, they can see fully retire at age seventy six will keep that number in mind age seventy six.

But then if I try to just go down the middle to what I believe is a perfectly rational set of assumptions, they can safely retire about age fifty nine. So seventy six, if they're being conservative, fifty nine, if they are being what I believe to be realistic, that's what seventeen year difference mean. That's huge.

And IT can't be overstated or understated. I can think through the logic right now, the double negative. All i'm saying is conservatism. IT can cost you many, many years of your life if you're not careful with .

IT yeah and I think that fear of our money running out is so powerful and we can't deny the emotional side. And I think that's what causes IT. And like bill said, I think mean, bill, that kind of like on opposite ends, bill is definitely more conservative.

I'm pretty more aggressive and maybe that's how I was able to retire as early as I did. I never thought about looking at IT that way because I retired at forty nine. Well, I pretty much have an all stock portfolio.

I even have a single stock portfolio. But there are some extra conservative things that I did, though I didn't count. So security. So I guess that would be the thing that baLance stood a little bit. But I think that, that probably did have a lot to do with my ability to retire many, many years sooner than I thought I could or the same person with the same set of assumptions that I have as far as lifestyle and things like that. So bill, do you think you're too conservative?

You know, I wonder that because i'm about twenty five, twenty five stacks, the fixed income, I do have a five ten percent cash allocation. But I live in the job that's insecure. I'm only as good as my last mistake, and a job loss at this point could lead to retirement.

So I don't think that i'm necessarily too conservative. I think I found my sweet middle and I have extended my runway to retire IT because I work less now. It's more of a life work, finance baLance.

And then I also have the problem with retirement, where what am I going to do afterwards? I might go the path of jackie SHE certainly had passions that eased her out of retirement, and she's a financial educator. extraordinary.

I may need to do my c fp. To join you guys on that side of the arena because life is long, right? My life expectancies to eighties and how I going to spend my retirement life.

So i've got to still figure that out. And a job gives me structure, so I don't really complain, although I do a little bit. And I watch all my colleagues in the space retire in their fifties. And but there's little formal and jealousy and nv there, which are motivating, but not motivating enough to be more aggressive. And I think our late starters may IT overly aggressive to say, if they started at fifty, I mean, you started at thirty nine, which is a big difference, and you navigated the longest bull market in history, where I kind of missed out on that. The assumptions, and you mention the five assumptions, can you tell us what those assumptions were for each of those three conservative middle, the road and hyper realism, the purchase of people understand what your assumptions were in leading to those multiples of years working?

Yeah, totally. Let me start with the most conservative set of assumption that I looked at, that I assumed that social security would not be there in any way, shape, perform for a retire. I assume that there sixty forty portfolio returns a ominous six point five percent.

So again, that's not six point five percent after inflation. That's just a namin six point five percent. And then I assume that they're inflation instead of the historical three percent per year was going to be five percent per year.

Again, just adding conservatives on to what we know historical standards to be for their expenses. I said that this persons now most of the time I was down in retirement, but this person wanted to be safe, and they assume that their expenses would actually go up in retirement. So they added a twenty five percent buffer onto their annual spending.

And then they assumed that their federal tax rates would increase, and they assume they a twenty percent effective tax rate in retirement. Again, this is a bit of the classic situation. Everybody's circumstances are so unique and different.

This is just one set of my hypothetical persons assumptions. So now does that make sense? build.

You want me to go to the other end of the spectrum to the most aggressive? Or should I just go talk about that down? The middle person who could retire at fifty nine?

Lets start with the most aggressive and come back to the middle so people understand because i'm a middle guy. Jackie is probably the most aggressive gal. So what we'll get to the middle. But let's talk about jackie stories, and you try to talk about my story.

Well, this, yeah, listen, what Jessie had to say about that. And i'd think I could resonate with most of IT going to Jessie.

So now this next set, IT, is the most aggressive that I wrote about because their zero conservative hasn't baked in, and even I back in a little bit of conservatism into my plans. So when I say zero conservatism, I don't assume that things are going to be Better in the future than they were in the past. I just assume there's going to be exactly the same.

So it's not like i'm out here assuming twenty percent stock returns forever. Instead, i'm assuming that social security ity will be there. It'll be based purely on this person's income history and will likely pay them about twenty five hundred dollars per month as measured in today's dollars. I assumed their investment returns on the sixty forty portfolio would be nine percent because that's about the historical average of a sixty forty portfolio. I assumed inflation would be about three percent per year.

Again, mages historical averages, I assumed that their expenses would drop by about ten percent per year in retirement or would be ten percent lower in retirement than IT has been during their working years because that's about what study show retirees tend to spend a little bit less. And then I assumed even though they're late starter, they're still smart. When IT comes to tax planning, I assumed that their effective tax rate throughout their retirement would be about seven point five percent.

So right, that's balancing rough distributions, maybe some smart rough conversions. Planning out their capital gains harvesting at the right times was not to encourage many. So that was what I called the hyper realistic zero conservative m case.

And at last, and for what it's worth, maybe I should say that hyper realistic person, if they started at age fifty, based on my scenario that I outlined, they could actually retired about age fifty five. Then let's go to the person who has a little bit of conservatism, but not too much, in my opinion, probably about the right amount baked into their retirement plan. I assume that this person social security would be there.

Now, at worst, I think you should assume that at least eighty percent of what's the promise to you and social security will be delivered to you. We can get into that detail for their investment returns. I assumed their sixty forty portfolio would return eight percent per year.

I assumed the inflation would be three point five percent per year. I assumed their spending would be exactly the same in retirement as IT was during their working years. And then I used an effective tax rate of ten percent on the federal level for their tax assumption. And again, this was the hypothetical preretirement who would retire at about eight fifty nine.

That's the model that our audience wants to hear, that the model I probably should earn when I was fifty to .

each their own bill. And it's bunty hearing jackie. You can, bill, talk about your differences and assumptions that you want to make.

I don't think there's anything wrong with saying, you know what, I just rather be a little bit more conservative. I don't want to run the risk of retiring, quote, quote, too soon and then feeling stressed or going back to work. I totally get that.

I just want to avoid the hyper conservative end of the spectrum where people want to layer fifty or hundred percent, essentially factors of safety, onto each and every variable in their retirement plan. And next thing, they basically look at the world and say, how will I ever retire? It's unrealistic.

I never can. And then you're gonna die with five million dollars. Or that's ultimately be what ends up happening. In a lot of these cases, you're too conservative. The entire time you pull the trick, you are too late and you would never spend down your portfolio. And now the question becomes, well, what are you, your children and grand children going to do with all this money that you've have massed when meanwhile you probably worked ten or fifteen years longer than you could have or should have?

Yeah, I mean, that seems like these three models can apply to sort of generation approaches to investing. But there is one model that you might approach at twenty three, forty, and then you may shift to the middle model sometime between forty and fifty. You want to retirement and then you shift to the conservative model as you're entering retirement because one of the biggest mistakes, and we'll talk about the twenty four biggest mistakes that DIY investors can make with cody gar in the future podcast and the number nine on his list was investing too conservatively early and then too aggressive late and flipping the switch.

Yeah, I think where we are makes a big difference because honestly, when I was approaching retirement, I felt like those five factors that you mention. Jesse, I feel like all of our audience should look at those five factors and see where they fall on those five factors. And I think as I was approaching, one factor that I was super conservative on was that I did not count so security at all.

So now that i'm retired, I know I can count that now I didn't work ten years longer than I should, but I stayed around and steward for two more years because I needed a little a bit more of a question on my investment port folio. But also I wasn't counting the so security. So yeah, those factors are really important to look at.

And IT might sort of change some minds on when people think they could retire. I don't know, bill, you think you might be changing your because I know you've been hard and fast on. You said sixty two is the early you can retire and now look at at some of these conservative things that Jessie mention any food for thought that stuck with you.

Well, we didn't started zero at fifty. We certainly had assets and i've subscribed to the sort of twelve to thirteen year plant. And sixty three is kind of the number i'm going to use july forth independence day, probably my retirement day, just like Jessie does with the best interest.

I got to have a reason. And my wife is probably going to work longer. And that plays into a two SHE has more longevity in her job than I do, minds more like a professional sport.

I work on the weekends, holidays, and I could hit IT more and maybe retire early. But at my age, recovery from these shifts factors into how I plan my worklife. And I value my time off and my flexibility for time off more than I value sort of killing IT in the empty nest, which would have shortened my runway.

A lot of factors that apply here. And i'm going to do a retirement assessment at sixty. So another year away, where I have somebody look at where we at.

And sixty three are reasonable time for me to retire while my wife continues working. So i'm A D I Y or till then, and we will do ready this plan or maybe i'll do IT sooner, but I think that's my approach. And if i'm told at that point that i'm working longer or spending less, then will adjust at that point. Can ask a quick question.

actually, jackie, about your social security assumption that might be in lightning for the listeners.

I'm just curious if you thought was, you know what, I do want to have something conservative in here and i'm just going to assume this zero here, even though maybe the back my mind, I know it's not going to be zero, or did IT have anything to do with the fact of the social security trust running out of money in twenty thirty four, something like that? Or potentially was IT just that you are retired early and you don't have as many social security credits built up as someone who maybe has a full thirty five year work history. And that's a reason why you wanted assume IT won't be there for you.

I think for me at the time, I was a combination of all of those and just really not being well verse on how so security work, but also like being in certain groups where people would say i'm not counting so security at all. And the trust fun is going bankrupt. You won't get in me.

So security, and I was overly pessimistic about the whole system. But since I retired and I really learnt how IT works, I was able to project my earnings and go to S S. A dog.

b. So I realized after the fact that there was a lot of political undertones when people would say it's gonna gone and things like that. And I just said, you know what, I can't make sense of any of this.

I'm just gonna throw IT out and not included. So I just kind of a shut down at that point. And that's probably how a lot of people do.

Honestly, the most conservative I probably should have done was, like you said, about only counting on about eighty percent of the projected benefits and assume me taking IT sixty two. That's quite the most conservative I would do, of course, if I wait later and all of that, that's going to make IT Better. But if I want to do the most pessimistic and the most conservative, so that was my thinking around so security. And I don't know if build you've done a lot more research then I had done before I retired on so security, so yours will be there. You feel in like that a part of your place.

Oh, absolutely. And that's a superpower of the late starter that you can't forget. I mean, I have to credit our plan as sort of we'll see thirty five hundred to four thousand dollars each per month.

So it'll be significant. It'll be another million to two million dollar portfolio that is inflation adJusting based on so security. So yeah, it's absolutely part of the plan. I think late starters absolutely have to include IT and probably in the middle of road fashion with eighty percent. So don't forget about IT.

And then you have to decide, in a married couple both who have worked, when do you take IT? And mike paper has a great calculator that helps you figure out generally the higher wage inner should wait till seventy and the lower wage genre can adjust in there somewhere. And I think for me and my wife, IT would be her around sixty five.

So that's the sweet spot for us. And everybody else will have a different sweet spot based on their circumstances. But bike pipers calculator and it's open social security that come is where you should really pluggin your numbers to find out what your social security plan and should be.

We're going to take another break right now, and we have a really fun article to talk about after the break. Yeah, you let's pause for a minute. And before we continue, let's share some words about one of this week. Sponsors delete me.

yeah. The latest report from the federal trade commission showed that in twenty and twenty three, ten billion dollars was lost to consumer fraud, and two point seven billion of that was lost to impostor sgam's.

Yeah, they've tried to scan me. They've scan my mother. This is a real problem.

So what do you do about IT? Well, first off, just learning more about the tactics these scams use can help us know what to look out for. But in a big way, I try to keep our family protect. IT is to make sure that all of our personal information is removed from as many data broker websites as possible so that we're less enticing of a target.

Yeah, you'd be shocked at how many sites out there are sharing your address, phone number, birthday, email and a lot more. Unfortunately, you can get these data brokers to remove your information. But unfortunately, the process takes hours and hours to do IT by yourself.

I know because I tried to contact them and only after spending ten hours that I give up and start using delete me, our sponsor today so take control of your data and keep your private life private by signing up for delete me now with a special discount for our listeners, just go to join delete me dot come for its last catching up that's join delete me dot come for its last catching up. You'll find the link in our show notes.

All right, we're gonna a talk about a single stack now full disclosure. Jacky has individual stock portfolio, and we're not necessary recommending individual stocks to our audience. It's two constant trade of a risk.

I only have one. I have a small and a Better half way, so maybe i'll go to oma a one year. And it's functionally a value neutral fund and it's a little fund to watch how IT does compared everything else.

But I think jackie is a navii a investor and we're going to talk about the videos s day in the sun flower. Now, this is a great article I encourage everybody to read, because IT talks about, can this go on forever and if I did, what would happen? R, I G, C, take us away on your garden, sunflower and navidad metaphor.

They love the introduction. And by the way, berger hathaway is the only single stock I own very much. I say it's like the reason why someone owns a again, he's baseball cap.

It's because you're fan and you want to have some little token of your fan do. And for me, that shares of burger hathaway deal as sure. So anyway, do T I like that? Yes, in videos s day in the sun slash sun flower, a little bit punny.

So the whole idea of the garden metaphor is, imagine that you are a small time gardener, and you build a couple of beds and you absolutely love IT. It's a joy for you that summer. So you come back the next spring, invigorated and you say, i'm onna, do more of IT.

And those first few years of gardening, it's pretty easy for you to grow you the size your garden, you can double IT in size for quite a few summer in a rail. But then at some point, doubling in size becomes rather there is no longer feasible, right? You don't have the space to double the size your garden.

You know, I have the resources in terms of water or fertilizer or time or anything like that. And the lesson is that growth can be exponential forever, and that eventually size itself becomes the enemy of future growth. It's true for mother nature.

And IT, turns out, is also true for economies or economics or financial topics. And now going to the sunflower metaphor. I had this image of my head of, imagine that we're looking in our garden, and we have these nice, fully grown sung flowers, which, if you don't know, they sprout, they can be, what, eight, ten feet tall.

And the next, the sunflowers, we have some corn, and so we have these fully grown sunflowers kind of towing above us. And next to IT, the corn blooms a little bit later will say, so the corn is maybe only half grown, and there are any ears of corn yet on the corn stocks themselves. And now, if I were to coronal, invest in these crops in some way, if I were to say, well, which ones going to do Better, which ones has more gross potential in front of IT?

Because again, as investors, we shouldn't be thinking about the past persae. We should be thinking about the future, which plant has a Better prospects. Well, if I look at past growth, i'd say it's a sunflower.

Look how much is grown. It's fully grown. It's got this beautiful head of sn flour seeds on IT and the corn.

Meanwhile, I mean, how can you even call a corn, and therefore any years of corn under the plants yet, why would you invest in that? Well, of course, we know that once a sunflower has reached maturity and it's handful of sunflower seeds within like two weeks, it's going to be dead. And the corn, meanwhile, still has weeks of growth in front of IT.

It's got these duties of beautiful vegetables and and tasty vegetables that will come from IT. And the idea there applies in the stock market, which is that if we look backward right now today, it's it's August twenty seven, twenty twenty four. If we look backward and we say, what did the best performing stocks been over the last five or ten years, the answer is going to be it's the largest stocks.

It's the tallest stocks that you will. It's the sun, flowers, whatever has grown the most over the last ten years. That's what's now the biggest stocks and wood have been the best investments.

But the problem is going back five or ten years ago, you didn't know which stocks. We're going to be the ones that grew the most five years in the future. If you did, and you could predict the future that way, you ought to be a billionaire or a trillionaire by now.

So instead, if we had gone five years ago and we had said, all right, let's just measure where every stock is now here's s it's twenty nineteen, right? It's five years ago. Let's just measure where all the stocks are right now.

And then here we are in twenty twenty four. Let's use the same measurements and say which stocks actually did the best over the past five years. The answers actually IT was the smaller socks five years ago that had the most runway to grow into what they are now.

In other words, investing in the half grown corn five years ago turned out to be the starter investment choice. And all in trying to make there in that point is looking at the tallest stocks today, if you will. The ones that have grown the most recently isn't necessarily going to be a guaranteed investment strategy that works for you.

In fact, data shows that one to stock has reached to say, the top ten in the stock market like in video recently. Did apple, microsoft also in the top ten history shows that those stocks actually tend to grow slower in the future. So some people would call that the small cap premium.

We don't have to get into that per say, but a couple of the stats that I think you will lude to in the introduction, I think IT was you, bill, would be I wanted to say, what if in video really does continue this rate of growth that had spent on recently? So the last five years from july twenty nineteen to july twenty twenty four, invidia grew by about thirty times. They grew from a one hundred billion dollar market cap to a three trillion dollar market cap.

And what if that does that again over the next five years? What if IT grows from a three trillion dollar market cap to a ninety trillion dollar market cap? Okay, well, ninety trillion dollars.

That sized company would be as large as every other publicly traded company in the world, all combined, right? IT would be three times the annual gross domestic product of the us, three times our annual GDP. And for kicks and gigabit, be roughly ninety trillion dollars more than my personal network. So I just thought those three factors were reasons why in video, there's no way that I can continue to grow at the rate that is growing.

wow. And that's an engineer right there is look like you're totally right. And we know probably the vast majority of people don't need to be buying single stocks.

We talk on the show a lot about index finds the jail Colin simple path to wealth type thing, but most people have one or two individuals like to own. But that's a good way to look at IT and who Better to kind of explain that in an engineer that has all this financial expertise. So that was pretty cool, but independent of etho.

jackie, what I will say is, and I don't know that is an out of your folio, jackie, but this where the whole conversation of position sizing comes into play because if someone we're to sit here and say, we will listen, I made here's a real truth that bill you and I need to face as well as i'm sure many of our listeners. great. You own the S M.

P five hundred index fund, and that's a pretty big part of your retirement portfolio, let's say, well, five or six percent of the S M P five ponder right now is in video something like that? So even if you say I have diversified stock portfolio, its large cap, mid cap, small cap and I own some bonds in there too, you still might have a two or three or four percent position in NVIDIA. So if jacket is over, you're sitting.

And like I said, I don't know what's your propose like jacky, but let's say you on twenty individual stocks and six percent of your portario is in video, that's not that much different than where the rest of us are sitting in our index funds. IT just looks a little bit different. So like I said, position sizing really matters .

to and you have a quote from uncle warn butter that the giant disadvantage face as size. In the early years, we needed only good ideas, but now we need good big ideas. What do you think about that?

Yeah, it's so cool. I'm reading razor lowest ense biography of warn buffett right now, which is a great read if you're a buffett fan and it's so cool. Looky back on berki health way history.

Even before that, when essentially buffer ran a hedge fund for like thirty or forty up to maybe eighty investors before he kind of started the whole bircher healthy thing. And at the time, he was dealing with single digit millions of dollars. And if he could find a five hundred thousand dollar investment that would triple in size over five years, he was gone to take IT.

And that really move the needle when he was working with those small sums of money. Will now burger healthy is what is a trillion dollar company yet? I think IT is.

But either way, for war and buffet to spend time and resources and paperwork to make a five hundred thousand dollar investment, IT just doesn't move the needle. Instead, he's looking for multiple billion dollar investments. And the problem is that once you get to that size of an investment, a lot of other people know about IT.

You want to mean it's like saying, I want to scout for a really good baseball player. Well, if your plan is to pull a baseball player off the janki, everyone else realized is that that person's a good baseball player too. So instead, you have to look in the places where no one else is looking and hope you find a dimond in the rough. So going back to the court, right, the whole idea is that once something gets really, really big, it's difficult for that thing to continue to grow in size at the sam Epace.

And then uncle rubin, I found this interesting because the presumption is the thought markers average ten percent year of year for the last hundred years. So if that continued about the video average thirty two percent at which IT has had since as IPO in one thousand and ninety nine, take us through what I would be in ten, fifteen and twenty five years.

yeah. So Robin Miller is another professional investor. Believe he runs a small investment management or financial planning for and I really like his writing and that's how I discovered rubin. He writes a blog and he's very insightful. And yes. So his math here, bill, is essentially that well, if the rest of the stock market to use growing at ten percent per year and meanwhile, NVIDIA continues, I think he uses a thirty two percent rate of return for in NVIDIA because that's how it's grown since its IPO in the late nineties.

So these two lines that are, again, these arent straight lines, right, these are compounding hockey stick type lines, one grown at at ten percent rate, the other growing at a thirty two percent rate, if you do that forever, and and this gets into some again, the math majors out there will know this. But maybe you're not a math major. You won't know this.

If you truly compounds two things forever, the thing with a higher compounding rate will always, always, always catch up to the thing with a lower compounding rate. It's just a matter of time. Always, always, always, it's just a mathematical rule.

So okay, NVIDIA is compounding at thirty two percent per year. If IT does that forever, IT will eventually catch up to the entirety of the stack market. If that stock market is only compounding at ten percent per year.

So warns point here, is that something around if they continue growing at this rate in fifteen to twenty years, basically in video will be bigger than the entire stock market, including invidia. It's kind of like a mathematical impossibility and rubs point, which kind of backs up my sunflower story, I guess. But rubin's is more sustainable is that eventually nothing can be more than a hundred percent of something that is part of right in video is a slice of the pie.

The stock market is the whole pie. And eventually, this math suggests the slice that is NVIDIA will be bigger than the pie itself. And we've all eat the enough poe to know that doesn't make sense.

Yeah and I can say that I definitely don't like any one stock including and video taking up too much of my portfolio, typically ten, maybe twenty percent if a person half the way, right. But for the most part, if i'm to your point about seeing this p ord stocks that just continue to go up and has all this compound, and we know that it's gonna level out at some point because IT can't be bigger than what is a part of.

So at that point, i'm thinking, how much longer do I want to keep IT? How much do I want to keep? And at what time I generally like to just shave a little off at a time i'm not selling in all at once.

So whatever. So you've definitely given me some great food for taught as someone that does have an individual stock portfolio that does have NVIDIA many other stocks as well. But again, jail columns talks about like the S M P.

Five hundred total stock market index fun as well. There's been self cleaning. So it's constantly looking at things like that. So I think the prose definitely keep that in mind, and they probably know all of this.

So i'm thinking when IT comes to risk, though, you wrote a little bit about this on your blog, how should we be looking at this? So there is an article talking about the need, ability and the willingness to take risk. So we talked about the video. We know about index funds and everything and how conservative we should be. So can you talk a little bit about that need, ability and will lingers to take on this risk?

Yes, we need, need, ability and willingness. I just see three potential filters that an investor can use to understand their own risk tolerance. Or when having a conversation with someone who's interested in investing, you could try to understand their risk tolerance. It's not the end ball.

For example, I love looking at historical data and showing people some of the things that have happened in the stock market in the past and saying, what this happened to you, how comfortable would you be with this? That's one of the ways that I try to understand someone's risk tolerance. Start in one thousand nine hundred and ninety eight and start investing in the stock market, and then wait until two thousand and ten and look at how your investments did that to twelve of your period. How does that make you feel? So anyway, that's another approach that I have, but I digress.

Going back to the ability and willingness these three phrases then someone need to take on investing risk relates to the amount of growth that they need to reach their financial goals, right? So this is perfect for late starters because if you are really a late starter and and you're kind of starting from, say, square one and you only have a shorter runway ahead of you to your potential retirement, you might have the objective need to take on quite a bit of investing risk in order to secure enough investment return to meet your defined financial goals. So that's what someone's need for risk looks like.

Their ability to take on risk low can be a little bit different. It's similar. But I think of IT, it's kind of the opposite side of the coin because the investors ability to take on risk is based on their capacity to withstand or recover from losses.

And this takes two different forms. One form could just be a really large asset where someone says, you know what yeah, i'm going to make a fifty thousand dollar investment here. And if he goes to zero, i'm okay because i've got a lot more money where that came from.

But the other form of ability, maybe skills towards Younger listeners out there, early people who have told themselves that they have a really long runway ahead themselves, where through thick, thin, they plan on continuing to invest over time. They're going to dollar cost average for many, many, many years. And so you know what, if the market drops here in twenty, twenty four doesn't matter to them.

In fact, they are going to invest straight through IT. They're going to continue contributor through IT. So they have the ability to take those potential losses, whether they're temporary losses or what's the upset of temporary forever.

And they're onna recover. And they are going to find they are going to keep on investing through IT. And then last willingness.

So you might notice those definitions, need and ability are reasonably objective, right? They should be based on pretty hard numbers. Willingness though is not objective, is subjective. It's very much based on the individual that we're working with, the person that we're speaking with and what's going on in their mind, how you react to the higher volatility that comes with high risk investments.

Are you willing to stomach losses? And this factor, the willingness factor, definitely can complicate conversations because if someone has a really large need for investment risk, but they're willingness can't stomach that risk at all, how do we square that circle? Or the opposite, if someone really, really wants to take on huge risks in their portfolio, but they really don't need to and you have someone who say is perfectly safe for retirement, right? All the numbers add up and yet they come to you and they say, in video is gonna double again, I want to go all in on in video and they're risking, that's one hundred percent of their investments.

Video, right there, not you, jacky, right? Well, that person, all the sudden they're putting their corn court safe retirement at risk because they're so willing, they so badly want to take on the risk. So anyway, it's interesting when someone's willingness doesn't align with their need or ability. But i'll pause there and let you guys try in.

This brings up a quote for me from bilder instinct where he says when you won the game, stop playing and that ring so true. That's a very famous quote us and you're in your willingness to take risk is too high going into retirement. That's where that statement from cody garc comes.

They're too conservative early on and then you're too risky later on. You've got to build, say, about and to avoid sequence of returns rest, which is a very real entity that you've got to navigate through as a retirement. So assessing risk is a very important part of making retirement planning.

You see from a lot of big box kaolians a risk assessment survey, which are relatively useless. And you gotta a talk to the adviser and answer these three questions in order to make a valid plan. What your goals probably should be in that list as well?

Yeah, I agree with you on that, bill. So I think a lot of this starts to come to mind when you are talking about our late starters. And as we wrap up the show, Jesse, we always like this. Talk specifically about tips and things like that for lake started, but you specifically rote about older beginners. So let's say someone starting at fifty five or sixty or a little bit later, what are some of your best tips for people that are not just starting late but they are older in life?

Yeah, one of my favorite jackie and IT actually comes from a study that fit schell bert, who's from the retirement manifesto. And I believe a second gentleman put this out together, and they they pull the whole bunch of fritz audience.

And one of their findings that really stuck with me is that the number one concern for most p retirees, so people who haven't retired you, the number one retirement related concern is financial, right? Do I have enough money? Will at last, all these kind of things that we've been talking about today that you guys talk about every week and understand so right, I think we all understand why that's such a big concern for premier tiaras.

But the cool part of their findings was that for post retirees, for people who'd been retired, I think you'll see there for like three years or five years or maybe they were somewhere within their first five years of retirement, that's who the cohort was. Finances weren't even close to being one of their top priorities. Instead, their top priorities had to do with health, had to do with relationships, had to do with finding purpose, had to do with hobbies and what they're doing to occupy their day. Those are the things that all the people who are actually retired start worrying about.

And so one of my biggest tips that I give to late starters, people listening to us right now, we're just simply people who are on that final approach into retirement, is this understanding of, hey, once you get to the point where you're pretty comfortable with your finances, you really need to pivot and start thinking about all the other stuff because that's really what's gone to be most important throughout your retirement and it's what's most important in life, right? I don't think any of us want to be people who say money is the most important thing to me, above relationships in my health and all that stuff. But for anyone who's red or seen the movies, the habit, which I finally caught up with my habit watching, I hadn't watched the movies, but you'll know that thorn, the door of king, once he becomes king under the mountain.

And reckless ims, his home, which is full of gold. He becomes ridiculous ly obsessed with these goals and puts IT above all the relationships in almost torpedos the entire story line because of his obsession with money. So we don't want to do that. So now, jacky, i'm not sure I would share those dwarf tips with the average person, but if you're a habit fan, you'll appreciate that. But yeah, there are certainly some other things i'm happy to go out to detail, but i'll pause.

There were going to link the article on the show notes and we engage our listeners to go through your articles and embrace your blog because, well, it's a weekly blog. It's succinct. IT boils down in your engine, your mind, complex topics into digestible bites.

And I signed up your newsletter. So I would encourage all of our listeners to do so as we wrap up the show. And do you have any parting tips for late starters? And where can people find you?

Yeah well, thank you guys so much again for the opportunity. This was also meant thank you for subscribing bill. Where can people find me that a straight forward one best interest that the blog.

And if you go to that blog, there's a little news letter sign up on the whole page where I sent out my weekly articles, I set out my new podcast. The podcast is available everywhere. So if you're really only a podcast listener and you don't really care about the written stuff, that's fine.

Wherever you're listening to this fine podcast, you can also find the best interest pocket there. Tips for late starters. I mean, it's cliche, but what's the chinese prover? The best time to plan a tree was twenty years ago. The next best time is right now that's really true.

And I think for the average person listening to this, don't only think about your timely between now in retirement, which might be three or five or ten or fifteen years, but think about all that time after retirement, which is likely multiple, multiple decades. Mean, that really is the time line that you should be thinking about. And it's probably for the average listener right now to twenty five or thirty or forty, maybe even more fifty years for some of you. And that's a lot of time and there's plenty of time to catch up and to live long and prosper. So anyway, I wish everybody good luck and and got to speed.

That was a Spark quote. So I guess we should Spark entirely another article for you how to fight retirement.

Yeah, I appreciate that you talked about all those years post fifty or sixty like early retirement is one thing, but that's only a small piece of retirement as a whole. Most of us are gonna a live until our eighties on average. And so we got to think about that part two.

So some of the money that we have in our investment for folio, we're not touching IT for another twenty thirty years even after you retire. And that was sort of a part that I wasn't really looking at and realizing, but I appreciate that point. And it's just been a whole gold mine honestly, having your other fight, guys, because we knew that you had so much knowledge and so many cool things that you would written about that would just be really fun to talk about. So thank you for that, Jessie. Bill.

you've got any last words. Now this has been a some, you never know, getting into the podcast every time. I'm impressed with our guests and what they bring to the table, especially with Jesse.

Everybody should take the advice of a rocket scientist, even though you don't consider. So Jessie, thank you for being here today. We'll certainly come back and talk to you again when there's other information that we need to share with our audience.

awesome. Thank you guys. Really .

appreciate IT. So bill, as you know, we cannot do this show without our amazing staff and the people that help us put this on. So our social media is dyna falk, our editor. Frits bizarre and shown notes are done by Sarah von sternberg. We love them and they keep us going.

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