Q&A: ChatGPT Built Her $1.2M Portfolio … But Should You Trust It?

27:11And I know we're going to get to this sooner or later. But the longer I can just leave that alone and I can leave it there and I don't have to go to a risk parity portfolio, I want to do that as well. So if I can not mess with an engine that is working fine and take the piece that could be trouble, the piece that bothers me about the rental properties is the mortgage. I mean, 100 % the mortgages. Because when your income streams go away, you want to have as little outflow toward debt as possible. While you got a bunch of money coming in, debt can be a nice leverage thing. But I really want to try to de-leverage as much as possible when those income streams begin to fade.

27:56Right. Exactly. And the 5-1 arm, I mean, that's concerning for a handful of reasons. There's the not knowing what it's going to adjust to, and there's the fact that it's at 7%. That's two strikes against it. So I believe that answers the primary question, but she asked a little bit about the portfolio, about timing and going toward a risk parity portfolio, Paula. Right. Frank Vasquez's answer is that people should start shifting over towards a risk parity portfolio as they approach retirement, as they're getting T minus five years, four years, three years. And so if they're planning on retiring five years from now, if the husband is planning on retiring five years from now, that means they're right at the beginning of that T-minus zone.

28:44But I don't see, particularly given how much of their portfolio is diversified into rental properties, I don't see them as having an urgent need to start reallocating at this time. I think that they can hold off on it for a little while because the risk parity portfolio, if you choose to have it, makes sense in the context of being a retiree who does not have any other income sources, but their retirement income is well diversified, right? They're going to have part-time income. They're going to have a rental property income. And then they're going to have the income that they pull from their portfolio.

29:24given that level of diversification in retirement, I think they can wait on the risk parity portion. I don't think they ever need a risk parity portfolio. Is it for the same reason because of the income diversification? I do. I think a risk parity portfolio works really, really well when you're trying to eke out every single dollar of your safe withdrawal rate, whatever you want your safe withdrawal rate to be. If we decide that bill paying is 5.2 is the new number. So if I'm trying to take out all the 5.2. 5.2 is the new 4.2. New 4.0. But if you want to take every nickel of that, then I think the risk parity portfolio could be on the table.

30:11I still don't love it, which is interesting because everybody who knows me, long-time listeners of the show know I freaking love Frank. What I think people have to be more comfortable with than I've seen sometimes is some of our big fans think we need to agree on every single thing. And smart people disagree fairly often around the edges. And I do feel like in this issue, Frank is looking at the science that I don't disagree with, but I've worked with hundreds of people. And I think that trying to manage your average afforder into a risk parity portfolio, there's a huge risk that you will blow up your own plan because of the fact that I think it's way more complicated than Frank thinks it is.

30:54Frank thinks it's not complicated at all. I can't figure out a way to get it scientifically into portfolios just looking back over the course of my career. And I'm comfortable with that. What was interesting was I did a podcast episode which featured Frank and Karsten Jeske, who you You know, Paula and CFP Dana Ansbaugh, who also is great. And so I had the three of them. And the only comments I saw was people saying, I left that episode more confused than when I started. People haven't heard it yet. What I want people to listen for is that Karsten and Frank are theorists. And Dana and I, I'm a former practitioner and Dana is a practitioner.

31:36And the practitioners were for the bucket strategy. and the theorists said the bucket strategy is nowhere near the science of the risk parity. And I don't think either Dana nor I disagree with them. We just think that practically what Karsten and Frank were advocating is harder to roll out, I think, than Frank believes it is. So are you saying Karsten and Frank are physicists and you and Dana are engineers? Wow. You got to put a TM on the end of that, Paula. Well, thank you. Thank you. Yeah, I think so. Like you look at the plans and you go, yeah, in theory, this looks great. It looks fantastic.

32:17I'm just not behind it. And I love Frank. And Frank and I both believe in the efficient frontier and risk parity portfolio is an efficient portfolio. And it's made for efficiencies while you're taking money out. I think it's really cool. I mean, I'm not going to say Ray Dalio is wrong, right? For people who are uber nerds like you and I. Right. Like I'm not betting against Ray Dalio, who has a great risk parity portfolio. I just really think that based on the nice job they've done a saving and the fact they know how much money they want to spend, they can then focus on the amount of money they want to spend and not on a maximum safe withdrawal rate.

32:59So I have to retool my portfolio completely to eke out money that I might spend on stuff that I don't really care about. By the way, for any listeners who are wondering what we're talking about as we talk through Frank Vasquez and the Risk Parity Portfolio, if you want a primer on this, we did an in-depth interview with Frank Vasquez in episode 618. You can listen to that by going to affordanything.com slash episode 618. We also have a cheat sheet, a free giveaway that summarizes much of what we talked about, and you can download that for free at affordanything.com slash riskparity. That's affordanything.com slash R-I-S-K-P-A-R-I-T-Y, riskparity.

33:43Your interview with Frank was fantastic. Oh, thank you. Thank you. You know, it was helpful. Frank and I met beforehand and did a pre-interview and kind of talked through everything that we were going to talk through. Honestly, that helped a lot. The preparation for the interview that I thought made it sing. And it did. Yeah. But, you know, she started with the question, how do we view our assets holistically? And stepping back big picture, I view everything that she's talked about, the part-time income portion, the rental property portion, and the portfolio portion as her own version of a, or their own version of a three-legged stool.

34:23You know, oftentimes in retirement planning, people say the three-legged stool is a portfolio, social security, and a pension if you have it. But they have built their own three-legged stool and it's part-time income, rental properties, portfolio. And so holistically, I would say don't over-focus on the portfolio portion. Your asset allocation as it currently stands sounds great. Keep that. Keep on keeping on. Especially right now in the next couple of years, I don't see any imminent need to change that. Or to Joe's point, maybe not ever. I think the rental property portion of your portfolio is really where you stand to make the biggest inroads because there's still a million dollars of mortgage debt to pay off.

35:11And once that is paid off, you're going to be cash flowing so heavily that it solves a lot of your retirement planning questions right there. And then the exciting piece of that, Paula, for them is that they could leave the portfolio, the funds and stocks as a growth engine. Exactly. And then they can begin thinking about, do I expand my lifestyle using this money or do I begin legacy planning, which is also exciting. So thank you, Kathy, for the question. We're going to take one final break to hear from the sponsors who make the show possible. And when we return, we're going to hear from a listener with a fantastic first name.

35:55My favorite first name. Joe. Her name's Joe. Her name is Paula, and she's got a question about 529 plans. All right. So that's coming up next.

36:10This Friday, the NBA on Prime tips off with their debut doubleheader. First up, Boston brings the action to the Garden as the Celtics face the New York Knicks. Then out west, it's a battle of the superpowers as the Lakers try to poster the relentless pace of the Minnesota Timberwolves. The Celtics and Knicks, who has the most hustle in defense? This game will come down to who wants it more. And the Timberwolves and the Lakers, it's two Western Conference heavyweights going toe-to-toe. Buckle up, folks. This one's going to be electric. Celtics-Knicks, T-Wolves and Lakers. Coverage starts Friday, 7 o 'clock Eastern, only on Prime.

36:55So imagine it's midnight. You're on the couch. You're scrolling through this new website, hitting the add to cart button, and you decide to check out, but you remember that your wallet or your credit card is in the other room and you don't want to get off the couch. That's okay. You don't need to because there's that big iconic purple shop button. You know the one. With that shop button, that's Shopify. And there's a reason that so many businesses sell with it because it makes everything easier from checkout to creating your own storefront. Shopify is the commerce platform behind 10 % of all e-commerce in the U.S., from household names like Mattel and Gymshark to brands that are just getting started.

37:34Shopify will give you a leg up from the beginning with beautiful, ready-to-go templates to express your brand. And you don't need to know how to code. You can handle everything in one place from inventory to payments to analytics. And they've got built-in marketing and email tools and that iconic purple ShopPay button used by millions of businesses around the world. If you want to see less carts being abandoned, it's time for you to head over to Shopify. Sign up for your one month,$1 per month trial period and start selling today at shopify.com slash paula. Go to shopify.com slash paula. Shopify.com slash paula.

38:15This episode brought to you by Progressive Insurance. Do you ever find yourself playing the budgeting game? shifting a little money here, a little there, hoping it all works out? Well, with the Name Your Price tool from Progressive, you can get a better budgeter and potentially lower your insurance bill too. You tell Progressive what you want to pay for car insurance and they'll help find you options within your budget. Try it today at Progressive.com, Progressive Casualty Insurance Company and Affiliates. Price and coverage match limited by state law. Not available in all states.

38:58welcome back our final question today comes from a caller with an amazing first name joe paula hi paula thank you so much for your show i have a question about 529 plans my husband and i are expecting and we're planning to have probably three kids and they are going to be going to private school and then possibly public or private university. So I think it is going to be a pretty large sum of money. First, I'm trying to figure out how much to put in a 529 plans. One thing that my financial advisor from Modality mentioned was that I can put in five years worth of gifts at once without issue. And I think that would be smarter because it can grow over time more.

39:49I do right now have about$200 ,000 that's just growing in high yield savings account that was kind of allocated for property. But I think based on just how things are going, I'm not sure we're really going to buy property at this time in the end. So I'm debating if I should put that money into a 529 plan or at least, you know, put$90 ,000 in to start when the baby's born. And then another thing that I'm trying to figure out is it looks like there are so many types of 529 plans with so many different restrictions and allocations. I obviously need one that is going to allow me to take out the$10 ,000 a year for private school in addition to college expenses, but I'm otherwise having a hard time sorting through that.

40:38We're located in California for now, but I don't know if we'll be here long term. We'll be here for at least the next few years. And then it's a little bit up in the air after that. I would just love to hear your perspective about using 529s, especially for high schooling expenses for kids. And then if you have any thoughts about the top 529 plans that exist. Yes. Thank you so much. I appreciate it. Paula, first of all, thank you for the question and congratulations on expecting your first child. I love that you are getting a head start on setting up 529 plans. So I'm stating this for the sake of everyone who's listening.

41:19The benefit of a 529 plan is tax deferred growth, which means the longer that that money sits in the plan, the better. And I know that you already understand this because of the comment that you made about front-loading five years worth of contributions in advance. But I'm stating this for the sake of everyone who's listening. The reason that that is so significant and the reason that front-loading that contribution in particular is going to make such a big impact is because it is the tax deferral and the growth that comes on those tax-deferred assets that is truly the bulk of that benefit. The earlier you can put money into the plan, the better, which is why I love that you are thinking about 529 plans while you're still expecting the first and before the other two children are born.

42:07You're doing it at exactly the right time. And the reason that I emphasize that is because sometimes I hear from listeners who will say, hey, my kid is 14 years old, and we're thinking about opening up a 529 plan. And at that stage, assuming that the child goes to college at the age of 18. There might be some value in it, but that value is significantly more curtailed as compared to what it might have been had they started earlier. The good news about 529 plans is that they are fairly uniform. Now, when you say different types of 529 plans, I think where people really get in the weeds with this, Paula, is that 529 plans mean that they are state sponsored.

42:52So there's this spaghetti of different plans because every state has their own plan. Now, here's the good news. Most all plans are available to everyone in the United States, no matter what state you live in. You might get a tax break, a state tax break for putting money into your own state's 529 plan. So you'll want to check that out. But in terms of the rules around 529 plans, up until 2026, you're allowed to use$10 ,000 per year for K-12 education expenses, and that'll be tax-free. Meaning, even though you put after-tax money in, it's like a Roth IRA. When you pull it out, you're not going to pay any tax on any of the gains or distribution.

43:35So that part is a positive. Now, the good news next year, that number goes up to 20 ,000. These are uniform numbers. So no matter which 529 plan you choose, you will have the ability to do that. And just to make sure that I'm right, I would always run this by your financial advisor that you mentioned. And I would also look at the documentation or call the representative of the 529 plan that you choose. My bias usually is toward a 529 plan in the state where you live because of the potential for not just the state tax break, but there might be other incentives that you get for being in state. So, a place to look, my favorite comparison site, I love this site called savingforcollege.com.

44:23I was wondering if you were going to say that because you mentioned savingforcollege.com on a previous episode, a recent previous episode. And this was in, was it in the context of the 529? It's the number one place to go there. I might have referenced it too because when you ask about how much money to put into the 529, there's lots of calculators there. I think you were referencing it in the context of calculators the last time. Yeah. So I like both of those things for saving for college, but it will go over everything about the 529 plan. Now, there are three basic rifts on a 529 plan. And I'm not even sure if one is a 529 plan, but people call it a 529 plan.

45:04The two main 529 plans are ones that you choose yourself and other ones that are advisor-assisted. And I'll caution you on advisor-assisted 529 plans. There are places, Paula, where I've said there might be value for you to buy things through an advisor. I'm not 100 % anti-advisor on everything. When it comes to 529 plans, this is a fund where you're going to put money in and you're probably not going to move it around. And so an advisor is going to get fees from this plan year over year. You're going to pay a commission to buy it. And they literally, not even figuratively, because I hate it when people say literally, they mean figuratively.

45:47They literally aren't going to do anything for that money. They are never going to do anything. 529 plans, when advisors take a chunk out, I always roll my eyes. Really? You're doing nothing for this, but you're not going to watch it. There's nothing to do. It's so simple. So I'd look at California's first. And then my favorite 529 plans, Vanguard offers a 529 plan through, I believe, the state of Utah. So if you look at Utah's plan and Vanguard, and I like the New Hampshire Fidelity plan, I think that's good. T-Roll Price is another great fund manager. Their Alaska plan is fine. And again, don't get caught up in the state.

46:30The state, frankly, is irrelevant. My kids, because I had twins, I used two. We lived in Michigan at the time. I used Michigan and Wisconsin, and we had some money in Utah as well. So I had money in three different state 529 plans for my twins when they went through school. They never went near Utah. We didn't go there. We didn't have to do anything with Utah at all. We might have gone to Wisconsin once. It was irrelevant. Didn't matter. We did get a state tax break on the Michigan part of the plan. Why did you pick Wisconsin and Utah as the other two? Wisconsin had a fund management team that's now defunct that I really like, which was strong funds at the time that managed it.

47:12And I was very close to that fund family. I understood that fund family very much. I knew exactly what I wanted. I thought it fit the asset allocation I was looking for. And then Utah was easy. It was the Vanguard plan. The Vanguard one, yeah. Yeah. The Utah one is really popular. Utah one is the one I hear about the most. Yeah. And Michigan's plan was TIA craft, which is also another institution. Oh, they're great. Yeah. Yeah. Now the third one, which often gets called a 529 plan. In fact, it's funny when I was just making sure that my I's were dotted and my T's were crossed for this segment.

47:44In some places it was called a 529 and others it wasn't called a 529. It's irrelevant. These are prepaid college plans. And really, if your child hasn't been born yet, this is a tough one. Because Paula, what you're doing is you're saying, if my kid goes to a school, usually it's a state school in X state, I will prepay based on either prices today, or I'm just going to put money like it's a layaway plan for college. If I'm really locked into a school or I've started late, I've seen these work fairly well for some people. It's a really conservative way to save for college and to put money toward college.

48:26But if you're starting as early as you are, I would highly recommend not going with a prepaid tuition plan. Well, and that locks you into a particular school. It does. Or a set of schools. Like as an example, Michigan has a plan called the MET, Michigan Education Trust, which you put money into. So you can go to any of the Michigan state schools. So University of Michigan, where horrible people go, Michigan state, where amazing people went. Yes. Little Spartan versus Wolverine rivalry right there. What, do you see a bias? I didn't get a bias in my answer there. You know, Western Michigan, Eastern, Central, Northern, whatever, As long as it's a state school, you're good.

49:08But if they decided that they want to go to Notre Dame or to Utah, as an example, you can do it, but the amount of money they give you is going to not be great. What about the private school expenses, Joe? Should she be thinking about that differently given that these are costs that are more imminent, They're closer in the timeline. Does that impact her choice of 529? I don't think it impacts the choice of 529 as much as it impacts which track she chooses. What you'll find is with 529s, they are very simplified, really, really simplified. And some 529s are only target date funds. So you're going to bucket much more conservatively for that K-12 because of the fact that you're going to be using some of that money imminently versus a college education 18 years from now, maybe 17 years from now, you'll be more aggressive in that part.

50:11So I think you're going to choose just the more conservative option inside of that plan. I think the place where I hesitate though, Paula, isn't on that. Although I do think it's important to think about your timeline and when I'm going to use this money. So I might use three different buckets here. I might use like K through third grade and then third grade through senior year and then the college money and the much more aggressive one. The thing that I worry though about, and this was one of Paula's big questions that I want to make sure that we cover. Paula the caller. Yeah. Paula the caller.

50:46How much money should I put into the 529? I think use those calculators, but I also think Paula, she's got to be really conservative because so many things are still up in the air. She mentioned that this money was for property, but given the way things are going, I don't know what that phrase meant, but given the way things are going, I'm not sure. Paula, I want you to hear this clearly, not Paula Pant, Paula our caller. Paula the listener, Paula the caller. Once you put money in the 529 plan, it's going to be really hard to take it back out. This is a decision that I don't want to have to back the money out of the 529 plan.

51:20I don't want to have to figure that out. I don't want to mess with that. I would only put money in the 529 plan where I have extreme clarity that that is going to be an education expense. So here's what I would do when I was a financial planner. We would take the amount we were sure of, no matter what school my kid went to, or if they got scholarships or any variety of things happen, and we would put that money in the 529 plan. The rest of the money, we would just put in a regular brokerage account and we would put it in funds or indexes, ETFs, that we've segregated so that I know that this is quote college money.

52:01In my head, it's college money, but I haven't officially put it in the 529 plan yet because we're not sure. And now I have the flexibility to change my mind. I was thinking that as well when she mentioned such a large sum in a high yield savings account. Well, actually my first thought, to be honest, My very first thought was, all right, if you're interested in buying property, you can buy property on a 15-year mortgage. And if you do that at the time the child is born, then by the time they're 15, that property is going to be paid off free and clear. And you then have the choice of either selling it off and getting a lump sum that you can use for educational expenses.

52:39Granted, you will have to pay capital gains tax, which is the drawback to that. but you would have a lump sum largely paid for by your tenants that you can use for educational expenses, or you have a property that's paid free and clear and that's cash flowing really well. And you can use that cashflow to cover educational expenses. And you can make a game time decision 15 years from now when that property is paid off based on what's happening in the market at the time. Yeah. I like the bucketing of the 529 plan, but I also think it's not the only answer. And a

53:14myopic and this is my only choice. There's several ways to do this and creating a cash flow engine is a great way to do it. Right, exactly. So when she mentioned the 200 ,000 earmarked for a property, my first thought was that property itself could functionally be the education savings component or a portion of the education savings component. Because particularly the 15-year mortgage when a baby is born is one of my favorite college saving strategies. Because at the end of 15 years, the mortgage is paid off and now you're cash flowing huge amounts of money. Exactly. And she's talking about private school.

53:49If this is paid off when the child is 15, that really pays for the latter half of high school. She's currently expecting her first child. If she's planning on having three and she does this now for baby number two and three, that 15-year mortgage can be paid off by the time those kids are 12, 10. I mean, I don't know what year baby number two and baby number three are going to be born in, but this could account for the cost of high school tuition, the cost of perhaps part of middle school tuition. Paula, one more thing I want to acknowledge. Your Fidelity advisor is 100 % correct. You can front and load five years worth of contributions to make them at once.

54:32And then I think right on, the quicker you can. Time is a great, great, great weapon. The only maximum that you have around 529 plans, you're only allowed to put 500 ,000 in to one 529 plan for the beneficiary. So you just got to watch that number. The other good news too, is that you talked about three kids. You also can change the beneficiary on a 529. So let's say that child one, for whatever reason, goes a different path. you can roll that to child two. You can roll it to yourself. It essentially can become the Paula family trust, education trust, where the family just continues to pass it down one family member to another.

55:15Or if nobody uses it for college, there's now a provision where you can turn it into a Roth IRA. However, the Roth IRA option is down the line. Paula, thank you for the question. And congratulations again. Joe, we did it again. We did it. We did it. This was so fun. This was great. We haven't had just an episode in a long time where it was all investing. Like every single thing was investing. Some financial planning, but a lot of investing. Exactly. The letter I, the second of the two letter I's in FIIRE. Fantastic episode covering many elements of investing from the efficient frontier to risk parity to 529s.

55:56Joe, where can people find you if they want to hear more investing wisdom? I already mentioned earlier a couple episodes of Stack of Benjamins people might want to dig into if they want to continue what we talked about. I'd like to talk about something else going on in my life, Paula, which is this. I help build walking trails in my hometown of Texarkana. I love taking part in my community. I think everybody should have some community involvement signups just opened for our half marathon. Run the line. Only half crazy. Run the line, half marathon. You're only half crazy. And the cool thing about our half marathons is it's half in Arkansas, half in Texas.

56:36If we get enough afforders and we get enough stackers that want to come run my hometown half marathon, it's February 15th next year. Registration is open. I like committing to this stuff early on, but if enough people come, I will try to put together an event here in our hometown for afforders, for stackers, for runners in our community that want to do a destination run. We'll figure out how to make it a fun weekend. You know why, Paula? Why is that? The day after this thing is my birthday. And the day before it's Valentine's day. And because we all love each other, Why would we spend this gorgeous weekend with each other?

57:17So anyway, February 15th, 2026, go to runsignup.com and look up run the line half marathon. Just put in run the line half marathon and you'll find it. And tell me, tell me if you signed up for our race. Wait, wait, a serious question, Joe. Can a person walk the half marathon? You really don't want to, but we have two other options. We have a two person and a four person relay. so people can walk part of it like three miles. The last option is there are people and kids who run an event called Kids Run the Line. And we have a lot of walkers that do that. So come to Texarkana and support walking trails in my community.

58:00All right. You know what? I'm seriously going to consider this, although on the walking side. That's fantastic because Paula ran once and it was so great. She texted me. Oh my goodness. I ran for like two minutes and it was a worst two minutes of my life. And she's like, you do this for fun. This sucks. It was so good. I enjoy keeping fit in other ways, but I am very much not a runner. But I could totally walk a half marathon. And it is super fun because we start in Texas downtown. You very quickly cross over the state line into Arkansas. You run the first half, run or walk the first half in Arkansas.

58:39And then you cross back over into Texas. And then the last about half mile, you actually go right down the line. Pretty fun and a big party at the finish. It is, by the way, the biggest run in our region. There's about 600 people that run this race. So it's not going to be just the it's not going to be the 10 of us just staring at each other supporting trails. It's a pretty big deal in our little town. That sounds great. Okay. Well, I will consider showing up and walking it. walking half of it maybe and seeing if I can relay with somebody else. Fantastic. Well, thank you all for being part of this community.

59:16If you enjoyed today's episode, please do three things. Follow us. Number one, follow us in your favorite podcast playing app. Open up that app. Hit the follow button while you're there. Please leave a review. Number two, download the Risk Parity cheat sheet, affordanything.com slash risk parity, R-I-S-K-P-A-R-I-T-Y. And number three, share this with all of the people in your life, the runners, the walkers, the kids, the grownups. Your 529 plan representative. Yes. The people at savingforcollege.com. Oh, I hope they know about us. We've been promoting them quite a bit. The person at the bank where you're paying off your mortgage early.

59:57The people at your retirement party when you retire in five years. The people at your kid's private school. Share this with all of them and more because that is the single most important way that you spread the message of FIIRE. Thanks again for tuning in. I'm Paula Pant. I'm Joe Salcihai. And we'll meet you in the next episode.

1:00:19Well, I'm going to do my best to keep branding you Mr. Efficient Frontier. Well, thank you. You know, if I call you that enough, it'll stick. Mr. Efficient Frontier. Put it on my headstone. Oh, I announced on the show what I want on my headstone. What's that? It's I'll meet you in the next episode.

1:00:39and she had the total stock market and it's 25 % of her portfolio. She doesn't want to sell it for tax reasons. Fine. Great. But if it's inside a taxable account and there's no fees to change it, why would I keep it? You mean if it's in a tax advantaged account? I'm sorry. If it's in a tax advantaged account, you want me to just say that cleanly or not? Well, now that I said that, I will. Yeah. If I would have paused there, we could have done it. All right.