Navigating Inheritance and Long Term Planning

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Terms and conditions apply Need to hire? This is a job for indndeed sponsored jobs. Welcome to Property O on Personal Finance, a special episode where we're joined by Nick Mcjoulei, the Chief operating offfficer for Rich Holt's Wealth mananagement and author of the blog of Dollars and Data. Together, we'll discuss how to build wealth at every stage of life From saving on a modest income to investing for retirement to navigating today's housing market. Nick, ready to get into it Gall let do it All right, question number one. our first question comes from a listener who textsed the office hours hotline Everyone talks about how to be rich, but no one talks about how to be poor How would you say for retirement if making under sixty thousand a year How would you structure your debt payments like student loans, credit and mortgage? Nick, thoughts I think the first thing you got to do is make sure you're making the minimum payments. I think you don't make those. M you start getting late fees, all those types of things. So as long as your minimum payments are taken care of, you have your emergency fund. So the first two things, after that, you rank order everything from highest to lowest return or you could say highest interest rate to lowest interest rate. and then every extra dollar after your minimum payment you then put into the highest return thing. So Credit cards. eighteen to twenty four percent is where you're getting charged on that, right? Every dollar you pay off your credit card debt, you're basically earning an eighteencent to twenty four percent guaranteed return There's no place you're going to get a guaranteed return of eighteencent to twenty four percent, right? So you're going attack your credit cards first. thenen you're probably going to go down the line and you're going to find, oh, my student loans are eight percent. My mortgage is, I don't know, seven percent, six and a half right now, right in the markets today. So it's like You start going down the list, you pay off your credit card debt, then you attack your student loans, then you attack your mortgage In terms of retirement savings, I say conservatively a diversified portfolio should get five percent a year. So that's it of the ones listed, that's the bottom of the list, right? So if I were going through, I would be attacking all the debt stuff and then I do the retirement savings at the end. So that's how I look at it is like return per dollar invested. And I think you have to attack the higher interest rate things first before you start going down the chain Yeah, that just makes a lot of sense and the only simple wrinkles I would add is Also see if there's a way to elegantly refinance some of that debt to lower interest rates, whether it's know some Some institutions like SofA, if you go to a quote unquote, went to an elite institution will refinance your student debt at a lower interest rate O ways to transfer your credit card balance into lower interest rates, refire your mortgage? likeike how do you bring your interest rate cost down? But Nick's absolutely right. that the best investment is getting rid of debt that's out of rate that you probably can't cant can't match in the markets. The only thing I would add is once you get your debt under control, there is some good debt. I would argue that a decent mortgage is that's good debt. It's tax deductible It's fairly low interest usually. Usually you can do better in the market But once you get sort of manageable debt, and it's mostly just your mortgage payment and maybe an auto loan if it's decent interest rate tryry and to figure out a way to have automated savings or automated investing that's tax advantaged in almost every state and country has some sort of tax advantage savings or investment vehicle you can take advantage of And the key is never to see it or never touch it. and that is have it taken right out of your paycheck such that you're not tempted like ninety eight percent of it to spend or increase your standard of living to whatever it is that comes through your hands On the whole, I agree that the lesson the key lesson here what Nick said is attack your debt. That's the best investment you can make All right Question number two Hi, Scott. My name is Scott too. I'm calling from El Paso, Texas My wife and I are in our early sixties. We run a micro small business out of our house. We own our house, our business has almost zero overhead and a small recurring revenue stream that pays our bills and a bit more And we have about one million liquid net worth in addition to our house For quite some time now, we felt that this market is overvalued And our age and with our concerns about the market We're wondering how we might deploy a chunk of our net worth to produce more stable, regular recurring income some reliable appreciation Thank you for what you do, Scott. You're a good example for us all. You do well and you do good I would like to follow your lead. Thank you, Scott. Thank you U neck thoughts I think they're in a great situation. The fact that they have a business with, as they said, low overhead that basically covers their expenses All the rest of this is either upside or just planning for the future when they either sell that business or wind it down, et cetera I think for them There's going to be two answers I'm going to give. I'll give the answer. I think they want to hear. and then I'm going to give the answer, which I think is the correct answer. So I think the answer they want to hear, they're looking for, okay, what type of investment should I own? right? I want to own some stable income. I also want some appreciation. for a lot of retirees, they're going to be looking at like dividend stocks or dividend stock EDF They're going to be looking at REIT, real estate investment trust, right? Those are things that pay out a lot of income. You can also maybe add a little bit of short term debt in there as well. So those three things in like a diversified portfolio of REITs, dividend stocks and some short term debt, that's going to do quite well in terms of getting your income and you'll retain their appreciation through the RITs and the dividend stocks That's the answer they probably want to hear. It's not the answer I would actually give. And I think the problem that a lot of retirees have when they look at like generating income, they overly obsess on things that actually pay income, right? And I think the better answer is you could just buy like an overall stock market fund. I understand they're worried about valuations, but let me just walk through this real quick You can just buy the overall stock market and it's going to appreciate over time and Over the last at least decade or so, the overall stock market has outperformed a dividend fund, even when you include total return, right So even though that dividend fund is paying you income and you look, you see those checks coming and you feel good, the market, the stock market, if you just put that in an overall index fund, that would have actually gone up more. And then the best part about that is you can just sell it down when you need to make those payments, right When you need the income, you can sell. So from a tax perspective, it's also a lot better just to have it in a fund that just goes up more and you can sell it as if you're creating the income yourself. So I think a lot of things have changed in terms of corporate strategy, in terms of how companies pay out dividends or don't pay out dividends, et cetera. So as a result of that, I think overly obsessing on income is not necessarily the right choice, especially from a tax perspective But if you really want to do that, once again, REITs dividend stocks and maybe some short term debt are the solution here Yeah, I really lik that. So the key piece of information that was revealed in the question is that they're still net savers And that is they're creating more income than they're spending. And so they don't need income And when you when you're in a dividend stock, keep in mind, those dividends are being taxed. Whereas when you're in a non dividend stock your money is growing tax deferred. So it should compound at a greater rate. So if you don't need income at this point, You want to take advantage of the fact that one of the greatest wealth creation vehicles or loopholes in history is that stocks compound tax deferred. They don't spit out the profits every year and say you must take this in the form of dividend at which point It gets taxed between twenty three and say thirty five percent if you're living in California, New York. So if you don't need the income You absolutely want to be in stocks that compound tax deferred because they don't lose money out to dividends Having said that, you're basically coming to the same conclusion a lot of us are and that is the market is overvalue. Now Nobody knows. Everybody thought the market was valued or overvalued in ninety seven. and they were right, if you looked at it at two thousand. By ' ninety nine, the NASDAQ had tripled It is very hard to time the market The one asterisk around all of this is I don't think there's ever been a time where it's more important to understand the power of diversification And that is people think they're diversified if they just buy low cost index funds and SPY But the SMP because of the concentration of market cap around the magnificent ten, means that if you're in the SMP, you may feel diversified, but you're not. What I would suggest is you think about diversifying not only by asset class, some bond funds, equity funds, but also geographically And that is US stocks now comprise over half of total market capitalization globally. And if you add it in debt, it might be sixtycent or seventy percent And you do see a cyclical ation between U. S. and call it the rest of the world And you want to be prepared if there's a major drawdown in the valuation of US stocks. because if you just think you're diversified by being in US stocks You're not. You're actually more concentrated than ever before. I would argue you're basically making a giant bet on AI. So one, if you don't need the income let that money compound tax deferred with stocks that aren't dividend stocks, as Nick suggests But also at your age, given that you've already built up a nice nest egg, you're looking to probably take some risk off the table And you do that through diversification. low cost index funds, but think about different asset classes, both equities and fixed income and what people usually miss is diversified geographically. Any thoughts on that, Nick No, I completely agree. I think they just need to have a good diversified portfolio for those liquid funds. So that's going to include, as I said, short term debt. you're going to want, yeah, if you want international stocks, you can go into other types of investments as well if you wanted to get into something like farmland. That's something that produces income. It's obviously very iquid. So you know getting into one of those like crowdsourced platforms, things like that. But there's a lot of different asset classes out there that can produce some income And I agree. You want to since you don't need the income now, start planning for that because you still have at least, let's say, twenty to thirty years ahead of you. And when you going to wind down that business thinking through that, how that's going to play out? because if those aren't covering your expenses anymore, then your actual liquid assets will need to do that. So kind of preparing for that transition is the big thing to look at here Yeah, and the only just hearing you speak, the only thing I would add to that is that At some point Like my dad died with about eight hundred or nine hundred grand to his name. and He should have spent more of it and that is my dad was so terminally cheap that haaving said that, I think he got a lot of joy from asking for his frozen margarita to go he was just so painfully cheap that I don't think he ever really had a chance to enjoy his money. and then at some point assume Assume you're going to get a four percent return on your money. asssume that At some stage, that four percent is more than your burn. What I would suggest is you and your wife maybe at some point think about, okay, Could we spend a little bit more money on travel on maybe fixing up our house, Im maybe giving a little bit of money away to things we're passionate about or people who could use some help I think the whole point of being as responsible as you've been and working as hard as you've likely worked is that at some point You know money money means nothing from zero to eighteen. It kind of means way too much, sometimes everything, kind of eighteen to seventy or eighty And then as you get towards the end of your life, it means nothing again And I just wouldn't be afraid at some point to think How could we have a little bit of fun? You know, could we take a really nice cruise Could we give some money away Could we, you know, buy a piece of art that we've just always loved? Could we whatever it might be, take our family for a reunion, and that is what I sense in your What I sense in your the question is that you're very responsible And I don't want to say people can be responsible to a fault. But keep in mind, money, I believe money is meant to be at some point spent So just be mindful at some point, you may want to ask yourself, could we have a little bit of fun with some of this money? Yeah, I'd agree with that completely. I think one of the things and if you actually look at the data on this, it's very surprising because like If you look at people who have, let's say a sixty forty portfolio, they're following the four percent rule and you do that for thirty years and you go back through history and you just do that every single year in a simulation, you're more likely to end up with four times your wealth than you are to be below your starting balance. So in this case of this couple, if they start with the million dollars and they just started using the four percent rule in the sixty forty, they're more likely to have four million dollars adjusted for inflation in the future than they are to be below a million after thirty years. So I think the spending more is something that we don't talk about enough here Okay, we'll be right back after a quick break Support for the show comes from the Guardian. Trying to locate news sources that reliably separate fact from fiction can seem like looking for a needle in a haystack Social media feeds, cable news, and subscription based news outlets might be able to give you one version of the news But not in the way that you need. You want the news fast, but slow enough to actually absorb the information Stateside with Ky Wright and Carter Sherman is here to do just that The podcast tries to slow down the news and wrestle with the questions regarding the world at large at your own pace Three times a week, hosts Kai Wright and Carter Sherman bring their expertise together to showcase different yet engaging perspectives Regarding the world today They will use their collective knowledge to discuss the news, international affairs, climate, culture, sports, lifestyle, fashion, and wellness. Plus, the Guardian wants to emphasize that they're not billionaire owned, meaning they're free to report the whole picture without interference Go to the guuardian. com slash stateside to learn more and listen wherever you get your podcasts or watch on YouTube starting may thirteenth Support for the show comes from Riffling. 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Ai slash proG signign up for exclusive access today Support for the show comes from IMA. Every day it seems like there's a new fed diet that wants to tell you what to cut out and what to add in But before you go and fill your fridge with beef, tallow, and salmon skin, ask yourself if you're actually getting the full scope of vitamins and minerals you need in a day Here's a tip to help you fill in the gaps. IMA's Daily ultimate essentials drink IMA uses clean ingredients. It's NSF certified, which means all the ingredients are third party tested for purity. Our colleague Ed Elson has been enjoying IMA. Ed, IM eight. Love it Hydrating, refreshing It makes me feel like I'm healthy. I hope I am healthy, but this makes me really feel that way. ig fan of IMate. Nice. giveive your body what it deserves with IMA. go to IMatehealth d. com slash propG and use code propG for a free welcome kit Five free travel saches plus ten percent off your order. That's I am number eight HA l t dot com slash Propt G, code prop G For a free welcome kit, five travel sachets plus ten percent off your order, Iimatehealth. com slash prop G code prop G. These statements have not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat cure, or prevent any disease Welcome backQion number three What should the average family with young children be focused on in this economy? My husband and I are in our early forties with some under thirty K savings and two children under two. We move to a lower cost state to be near family, part time childcare, and a house in an upscale area we will inherit someday within ten years Do we hold off on investing in our future and hunker down through the storm? Thank you so much for what you do You know, do you want to live in that other house is the big question I would ask. like do you want to live there you know, is that where you guys want to take over at some point? or are you happy to like sell that home in the future if you just find a home that you like, right? So I think it it's a question of like, it's more of a personal question than a financial question in this case. They They're working. they have two kids, they have a small, they have a start in terms of savings, but not enough to quite frankly feel comfortable yet and they have two children. This isn't a hallmark channel advice, but I I traded off a lot of time with my kids and I focused on work because I wanted to figure out a way to make more money than I was spending, which was really difficult living in New York And they did what ultimately I did, and that is they did a geographic arbitrage. and I moved to Florida where The school we sent our kids to was twelve or fourteen thousand doars a year, not fifty eight thousand dollars a year at first Presbyterian or or avenues. So we did the geographic arbitrage, which it sounds like what they've done At this point, what I would say more than anything is You and your partner need to get aligned around your approach to eararning, saving and the trade offs around time with family and sacrifice It's nice to have one person at home. It's also nice to have financial or more financial security of two incomes I would argue also there's a lot of evidence showing especially with daughters, they make more money when they see their mom working. And let's be honest, usually when we talk about two incomes, it's mostly the mom going to work, although that is changing a bit My advice is that you get alignment with your partner There is no balance There's just trade offs around what are the sacrifices in terms of lifestyle as we do kind of automated savings plans or automated investments that take advantage of maybe the company we work with around matching or state sponsored tax advantage savings plans But get alignment, you might decide, look, we're not going to have a lot of savings. We're going to live pretty modestly even when our kids are out of the house because we want to spend more time with our kids or at our church or coaching littleittle leeagues or that having a certain level of wealth by the time their kids are ready for college or out of college is important And we're going to need to make certain sacrifices in terms of lifestyle. or maybe spending more time focused on our careers But I would suggest they do the math and get alignment around goals and the sacrifices and trade offs required to hit those goals And again, this isn't people have a tendency to be very generous and hallmark with other people's money When my kids were young, I got alignment with my partner and I basically said, I'm gonna to work all the fucking time. And it's going to come at a cost. It's going to put a strain on a relationship I'm not going to see our kids as much as I would like and probably would be good for them and good for me I hate to say this, but I put I'm' say I put family second, but I put financial security and the optionality and wonderful things that would afford me and my family later in life. I prioritize that and it came at a cost, but I had alignment with my partner and now I have a tremendous amount of balance because I worked very hard. I got lucky I paid off. And now I can basically do whatever I want whenever I want So I go back to again, the keyword is alignment with your partner in recognition that everything requires trade offffs And you just need to decide with your partner, what are the trade offs, where on that spectrum is the right point for you in terms of again, those trade offffs. Any An follow up comments on that Nick Yeah, I'd also think about the inheritance and how because obviously the size of the inheritance matters is that you're just getting a house? Is there more assets there because that can then your saving behavior, mayaybe you don't need to save as much early on because you know that there's going to be this large transfer in the future. The other thing I'd say about the housing market, if you're in a low cost of living area, obviously be much easier to get a down payment. Obviously the home prices will be cheaper there as well. But for a lot of people, because of where rates are, no one wants to borrow. so the right solution may just be to save up more cash, put down a larger down payment or just pay in cash in a few years. Think about all those trade offs. Obviously, there's a lot of information we don't have here to give a better prescription. but you know, I'm thinking about this. You know my wife just we just had our daughter two months ago. So we're starting that journey. We're thinking about buying a home. I live near New York City. I'm in Jersey City and it's quite expensive here. So because of where rates are, I'm basically overs saving in treasury bills to eventually buy home Either in big down payment or mostly cash in a few years because I don't want to borrow at seven percent, right? or I want to borrow six point five percent. So because of that, I'm just thinking about this differently. I don't know if that was kind of embedded in the question they're asking, but I think that's kind of a lot of people are looking at this saying, hey, this looks kind of crazy. I don't know if I want to borrow it at this rate. Should I just keep saving and maybe I buy later or put down a bigger down payment to get my payment lower? And I think that's some of the stuff they have to think about here Yeah, and just Hearing you say that kind of inspired another thought and that is I don't think it's a bad idea to ignore the inheritance part to make decisions tootally ignore if and when you might inherit a house or some money. because one Old people are developing this terrible habit of living for fucking ever Uh so, you know, if your parents are