Q&A: I Reached Financial Independence Three Years Early … Now What?

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24:47Welcome back. Our next question comes from Carol. Hi, Paula and Jo. This is an update for you along with the new question. You answered my first question in episode 412 and gave me the name Carol after the only woman who has won four Pulitzer Prizes in journalism. At that time, I had about$750 ,000 in retirement savings. I appreciated your answers and took them into consideration in my investment choices. I'm now 53, and since my previous question to you, I'd set a retirement goal date of June 2030 at age 57 with$1.4 million in savings. This timing was planned primarily around my brokerage account as my bridge fund to age 59 and a half.

25:29Most of my retirement funds are in pre-tax accounts. I'm in the fortunate position of having reached my FI goal amount already, a few years ahead of schedule. However, I don't have enough in my brokerage account to fund six years of expenses. I could probably get four years out of it. I've been trying to save more cash in my brokerage account, but I got a new idea that I want to run past you. I have a condo in a neighboring state that is currently rented out, and the plan is to go back to it, likely with my partner after his retirement in at least 10 years from now. The interest rate is 4.125%, and the payment is low at$1 ,100 per month.

26:05I pay taxes and insurance directly separately, and it has a remaining principal balance of just under$124 ,000. It's scheduled to be paid off in 2038, and I always built this into my early retirement plan. However, I've begun to wonder if it makes sense to pay it off early for the following four reasons. Number one, I have the time, so to speak, since I was always planning to retire in 2030 anyway. Number two, if I direct nearly all of my after-tax savings from my W-2 job and rental income, I could have it fully or nearly fully paid off by my retirement goal date. Number three, with such a short timeline, this seems as good of an investment choice as saving cash in a high-yield savings account.

26:46Number four, not having a mortgage payment would allow me to manage my income much more easily to get more ACA subsidies and probably even do Roth conversions at the same time until age 65. While paying it down, I would still at least get the match in my company's simple IRA and contribute some to my Roth IRA, but would say very little otherwise. I do already have a six-month emergency fund plus a sinking fund for any condo issues. What do you think? Is this a good idea? Or should I just focus on retiring as soon as possible by using IRS Rule 72T to access my pre-tax accounts early since I don't have access to a 401k and the Rule of 55?

27:26My current job is work from home and very flexible and low stress, so there's no huge push there. I have a tiny side hustle that nets me only a few extra thousand per year, but it's very rewarding and enjoyable, and I plan to continue this after retirement. But I know I wouldn't want any other full or part-time job, at least for the first few years. I would love to hear your thoughts. Carol, congratulations on how far you've come between episode 412 and today. Steve, can we get a round of applause?

28:00Paula Pant:Really? What an incredible success story. You had$750 ,000 the last time that you called in and you have 1.4 million right now and you beat your retire early goal. Like you're calling in with the best possible problem, which is you actually beat the goal that you set and you're like, do I take the win or do I make it even better? Wow, that's incredible. So first, congratulations. And second, I hope that everyone else who's listening hears that and finds inspiration and education in that. Because if Carol can do it, so can you. So good. I truly want this to be a community where people take inspiration and knowledge from your fellow peers inside of this community.

28:55So to everyone who's listening, go back and listen to our question again and take inspiration from that. Because especially for those of you who are at the beginning of your journey, or if you're in the messy middle, that murky middle where everything just feels really slow, the novelty of the beginning has worn off. And now you're just like going through that middling slog. Listening to Carol can really help you through that. So what do you do, Paula? Carol, it sounds like you like your job. As you've stated, you work from home. The job is very flexible. The job is super low stress. And in addition to all of that, I don't hear a compelling alternative of something that you want to rapidly retire into.

29:44If you had called in and said, I'm obsessed with surfing and all I want to do is surf and it breaks my heart every single day that I can't do that and I would love to devote myself to that entirely, but do I do it now or do I wait until 2030? dirty. If you had called in and said that, we would be having a totally different conversation. And it doesn't have to be surfing. It could be needlepoint. It could be painting. It could be miming, right? It could be anything. None of my business, what your hobbies are. But if you had some passion that was just driving you and you felt pain about not being able to express that in your life, we'd be having a totally different conversation.

30:30But it sounds to me like, you like what you do and correct me if I'm wrong, but my interpretation is you're not in a huge hurry to leave your job. So I say to quote you, you have the time.

30:46Paula Pant:It is interesting because that was my first take too. And it was basically the way that she lit up when she talked about this. But then I started wondering, and I really want to make sure that But Carol hears what I'm saying correctly and so does the rest of the afforders because I'm talking to a bunch of us money geeks, right? I heard her voice kind of light up when she talked about doing this. I have a different idea and I have the time and her voice lit up. And I just want to make sure of one thing before I jump into 100 % agreeing with Paula, 100 % agreement, which is this. sometimes we light up because we're excited about the new possibility.

31:32Paula Pant:But there also is the fact that we have this incredible comfort zone where we do the thing that makes the money train go. That's why we listen to this podcast. It's why we are who we are. And before you decide to spend more time at work and pay down a mortgage that's at a low interest rate. I love all of that, by the way, if what Paula says is true, but I want to make sure, I just want you to make sure, Carol, that this isn't procrastination in disguise. And the reason is, Paula, you and I have talked to too many people who experience one more year syndrome, right? This came at you much faster than you thought that it was going to come at you.

32:19Paula Pant:this is exciting it's new but it also means it can be frightening as all get out it's a whole new chapter it's this whole new vast wilderness of opportunities and that little voice in the back of your head might go hey you know what i got an idea that is way more comfortable and that is you keep doing what you're doing now we just pay off the mortgage instead i don't think that's the case because my vibe, Paula, was exactly what yours is. But you and I have seen it way too many times from people very, very comfortable making money. It's who we are as a community, by and large. That's who we are.

32:58Paula Pant:Don't let procrastination disguise itself as I'm going to do this thing that doesn't respect enough that we over-respect money. And because of that, we often under-respect the amount of time we have to do other things, to climb other mountains. Yeah. I fully agree with everything that you just said. I'll also state, you know, I was talking to somebody recently who said, I have the opposite of one more year syndrome. I have one less year syndrome. I am so, they were like, I am so eager to get out of my job that even before I'm truly ready, even before the numbers line up, I'm constantly going, okay, if I make the most optimistic projections possible, can I get out of here one year sooner?

33:54If you really want to be out of there, you know.

33:58Paula Pant:That's not where I thought you were going with that, Paula, because I think there's a different syndrome, which is just the opposite way to look at it. One year that you spend doing this, is one year off the end of your life when you could have been doing something else. And I think often we weigh where we're at heavily, but holy crap. If you have one less year syndrome, I'm with you. Don't even wait for, who cares if you retire, get the hell out of there. Get out of that spot now. Yeah. I suppose in that regard, one more year syndrome is at a minimum a positive sign that, you know, a sign that you don't feel, I was about to say a positive sign that you don't feel negatively.

34:40Right. But at least you feel comfortable doing what you're doing. Exactly. Exactly.

34:47Paula Pant:One more sign. You're not negative. Yeah. Yeah. But I fully, the way I heard her voice light up, I do think Paula, that you are spot on if she does love it and she's very happy. Sometimes just the fact that we know that we're financially independent makes our job more fun. Yeah, it does. It makes the job more fun. It makes it, it just, it makes it a choice. It's the distinction between, I hate to use this analogy, but I'm just going to say it. It's the distinction between like being in a relationship because you want to be in it versus being in it because you feel as though some outside circumstance is forcing you to stay.

35:29And you don't necessarily want to be there, but there's some outside external circumstance that's at a minimum highly pressuring you to stay in.

35:39Paula Pant:And in this case, that outside influence to stay in the relationship would be next week's bills. Right. When you know that what you're doing is a choice, I mean, we haven't mentioned this yet on the recording. I'm in Spain right now. Like I'm recording this episode from Spain and that's a choice. You know, she just wants to spend more time with me. Yeah, exactly. I texted Joe earlier today and I was like, Hey, are you free at like 5 p.m. Central, which is midnight in San Sebastian. And Joe was like, you want to record at midnight in San Sebastian? And I was like, want is a strong word, Joe.

36:33Paula Pant:But seriously, if you didn't want to, you wouldn't. Exactly. This is the type of thing that if it made you unhappy, you just wouldn't do it. well, frankly, I'm because of jet lag, I'm like wide awake, even though it's 1 a.m. here. I'm still on East Coast time. So I am wide awake because it's like 6 p.m. on the East Coast. Plus, what's more fun than yucking it up with afforders at 1 a.m. in Spain? It's like I get to talk to my buddy, Joe. I get to answer some questions about personal finance, which is my favorite topic. Worst things have happened to better people. like sometimes it's pinch yourself i mean it's just so enjoyable exactly and so the point of that is that if you like what you do then even even the inconvenient things are still kind of something that you laugh about and something that at the end of the day you don't really mind because you're kind of just good with it you kind of feel lucky that this is the position that you're in and you enjoy it and you're good with it.

37:42And so even when stuff gets inconvenient, you're like, cool, I'm down. I got this. I'm happy. And if that's how you feel about your job, Carol, then stay in and stay in for as long as you feel that way or until there's some compelling reason to do something else. But I guess, Joe, to your original answer, if you like your job, if you're happy with it, I don't see any reason for you to accelerate early retirement simply because you can. And I also don't see any reason for you to delay early retirement simply because you have a mortgage. So the whole thing hinges on, do you like the work that you do or not?

38:33Paula Pant:Did I predict that one when I said it depends on if I like my job? Yeah, you kind of did. Wow. Notice what we didn't talk about. The math nerds, I'm sure we're honing in on the 4.1%. We didn't go near the 4.1%. At this point in the game, it's pretty irrelevant. Yeah. Because she's financially independent. So who cares about the 4.1? Exactly. That was my favorite part of that answer. What we didn't say. That now we are pointing out that we didn't say. Pat us on the back.

39:07So Carol, congratulations on the position that you're in.

39:10Paula Pant:Super. Great. I love these, the callbacks. Right? These are my favorite. And Carol, that's why you won four Pulitzer Prizes right there. All right. We're going to take a final break to hear from the sponsors who make the show possible. You're going to take a break? Just a brief one. Just a little one. And when we return, Joe, we're going to talk about your two favorite topics, the efficient frontier and risk parity.

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43:29Welcome back. Our final question today comes from Mark.

43:37Hey, Paula and Joe, this is Mark from Salt Lake City. And I was recently listening to episode 734, where you all were responding to a caller that was trying to adjust their portfolio after moving away from a financial advisor. And you were recommending that they truly understand the funds that they want to be invested in. And you were talking about how having lots of funds that may be optimal, possibly along the efficient frontier, is important, but also you need to understand why you're holding those funds. And at one point in the conversation, Joe actually mentioned that he was not a fan of risk parity style portfolios.

44:15And I was curious to get more information on why that is the case, where if you kind of take the efficient frontier concept to its extreme and final conclusion, you eventually arrive, I think in most cases, at a risk parity style portfolio. So I would really like to hear your thoughts on why you are in favor of the efficient frontier. I mean, I kind of understand that already, but then why are you against risk parity style portfolios? I'm a person that really enjoys learning about new financial concepts and have been a big fan of Frank Vasquez's risk parity radio podcast have learned a lot from him and knowing that risk parity portfolios perform well in different economic environments was intriguing to me especially for in the future for a drawdown portfolio maybe not so much for an accumulation portfolio.

45:08And I think Frank is quick to admit that, that risk parity is super beneficial for drawdown portfolios in particular. So I'd be curious to hear further thoughts on why you might not be a fan of risk parity, but would still hold to wanting to push for efficient frontier usage, which makes sense to me. I totally get the efficient frontier and why you would want that, but then why not taking it all the way to the risk parity portfolio style solutions? Love what you guys are doing. I love your Q &A episodes. Thank you so much. And look forward to hearing your responses.

45:45Paula Pant:Mark, thank you so much for the question. And you know what? It is a great question because what's interesting is having been a friend, an online friend, it's funny, Frank and I have both been at the same conference economy multiple years, never met in person and not on purpose. Frank and I have always talked about meeting face-to-face someday. I can't believe I've been there several times, never came face-to-face with Frank. And what's also interesting is Frank and I also agree on about 95 % of everything that we talk about. The frustrating thing that I've always told Frank is that he makes a big deal about the 5 % that we disagree on.

46:31Paula Pant:And that's what this is going to do, by the way. So I want to start off with that, Paula, because I do feel like it's the 5%. And I feel like Frank does make people smarter before I really rip into. Oh, boy. Here he goes. I'm going to kick back with some popcorn. We're going to let Joe cook. I have said to Frank several times that very, very smart people, not just me, very, very smart people do not end at what Frank calls risk parity. And we'll get into whether it's actually risk parity or not. But very smart people, practitioners don't advocate for risk parity. You see CFPs that are phenomenal at what they do, have phenomenal results, don't do risk parity.

47:22Paula Pant:And you have to wonder, and I've brought this up with Frank many times, either all these incredibly brilliant people are either what he says sometimes scammers. He calls them scammers or hoarders. He'll often call them people running their business incorrectly by old models. So they're either willfully doing this to their clients, avoiding something which would solve a lot of problems. Or this is crazy. Maybe there's a reason why they actually don't like risk parity. So what you're saying, Joe, is that you're establishing there are valid reasons that you are about to go into as to why the pros don't often recommend this.

48:07Paula Pant:Yeah. And I'm also saying, Mark, it ain't just me. It ain't just me. Look around at people who actually practice this stuff, not people who talk about it and don't have clients and have never seen how this actually works with somebody else's money besides their own. It's okay to do it with your own money. For me to say it, a guy who feels very responsible for other people's money and used to be directly responsible for other people's money would be incorrect because I don't believe it. And again, just to highlight, Frank Vasquez is a retired attorney. And so Joe, what you're illustrating is a distinction between somebody like you, who's a former financial advisor who worked with clients versus a retired attorney managing his own portfolio.

48:53Paula Pant:That's right. Or, you know, yeah, me, current CFPs, super smart people who don't agree. I'm not going to get into all of the science because for me, it isn't the science that makes me like Efficient Frontier and not like Risk Parity. So I'm not going to get into that of where I think Frank is wrong. Plus, there's somebody who did it far better than I could ever do it. If you go to a blog called Early Retirement Now, which is run by a gentleman who we call Big Earn, Karsten Jeske. Very smart guy. Another guy who traditionally, he has clients now, but traditionally did not have clients, but he really, really loves diving deep into the numbers and into the math.

49:38Paula Pant:And his last two posts have been how to lie with personal finance part four risk parity. And the one before that, can we increase the safe withdrawal rate with risk parity? Something that Frank says you can do. Karsten shows you can't. You can't. And it doesn't work as well as Frank says that it will. Okay. So we will link to both of those articles in the show notes. So if you're interested in the math, he very, very thoroughly talks about some of the assumptions that don't really land and whether this is actually risk parity or not and why Karsten doesn't think you should do it. He and I had a long talk in March.

50:24Paula Pant:We were together at a conference and had a long discussion about this and we came to the same conclusion. He's published his, I will give you mine now because mine is for different reasons. I don't like risk parity because from a practitioner point of view, I believe the biggest problem with your portfolio is you. You are the biggest problem. And look at how much over the last 25 years, behavioral economics have really become much more front and center and how we've seen how our inability to do simple math when we make decisions, our inability to realize just how small we are and how we are not different than everybody else.

51:12Paula Pant:We think we're smarter than other people, just our brain, you know, thinks we're super smart. So we make these decisions that we've been told over and over are bad for other people, but they're going to be good for us, damn it. And what's interesting, Paula, is that I saw this for 16 years working with people. I saw people make the worst decisions. And then I look at my own decisions and I've been there too. I've made bad decisions. The thing that blew me up was me. So my goal is to make sure that you understand what you have, which is exactly, Mark, what you said. But I also don't want to be in the spot where I think I can predict the future.

51:52Paula Pant:Because the thing that happens when I dive into not just one of Frank's risk parity portfolios, but also I've said before, I love Paul Merriman. I love exactly what Paul Merriman says. I highly, highly dislike somebody going out and buying off the shelf one of Paul Merriman's portfolios. I've used Paul Merriman to prove my point that you can do better than VTSAX. Paul Merriman's amazing. Frank Vasquez is a guy who's done a lot of great work for people by also saying something similar. For listeners who are unfamiliar, Paul Merriman, who's a former guest on this podcast, and we'll link to those in the show notes as well.

52:31He is someone who has put together model asset allocations, the four fund portfolio, the eight fund portfolio, the 10 fund portfolio. So he's put together these model asset allocations that through his research and through lots of backtesting, he shows would beat a less diversified portfolio. It would beat a VTSAX plus a bond fund, which is what JL Collins, a different previous guest, recommends. So just to back this up for new listeners who are unfamiliar with this, we've got a previous podcast guest named JL Collins who recommends just two portfolios. One is a broad market stock index fund, and the other is a bond fund.

53:21One of our previous guests, J.L. Collins says, just have one fund that represents the entire U.S. stock market. Have one fund that represents the entire U.S. bond market. That's it. All you need is two funds. So that's J.L. Collins. Then you've got Powell Merriman who says, here's a lot of backtesting and a lot of math and a lot of data to show that if you just expand to these particular four funds or these particular eight or these particular 10, you can get better returns without taking on substantially more risk. And so that's the Paul Merriman approach. And then you've got Frank Vazquez, whose approach is not about what you should invest in while you're growing your portfolio.

54:00His approach is what you should invest in when you are drawing down from your portfolio. And he says, here's a different way that you can allocate your assets as you're drawing down that would allow you to take bigger withdrawals. And that's the Frank Vazquez thing. And if you're brand new here and this is like a bunch of word salad, we're going to link in the show notes to all of these. Because for the people who have been with us for a while, this makes sense. But if you're new here, you've got some, what do you call it in college when you have to take a class before you can take the next class?

54:36Prerequisites. Prerequisites. Yeah, there are a couple of prerequisites that you need to listen to before you can even understand what Mark's question is.

54:45Paula Pant:Yeah, and there's a reason, Mark, why she put your question at the end of the show is for specifically that reason. It wasn't because it's not interesting to those of us that have been here for a long time. It's because this is way, way, way over a lot of people's heads. Yeah, this is an advanced question. Yes. This question is not for beginners. I should have said that at the beginning. This question is not for beginners. No, you got to know a lot of the people. You got to know a lot of the discussions going on behind the scenes. You got to know everybody's little fiefdom of what they talk about.

55:13Paula Pant:And let me go over that continuum with you, Paula, because I really like the way that you laid that out. I love JL Collins' position because the place where I agree with JL is that you can get there using JL's portfolio. You can get there. You don't need to be fancy. You don't need to do other things. You don't need to do more. That's pretty exciting that you don't need more. I like that. Then I agree though, with former guest of yours and mine, Nick Majuli, a friend of ours as well, who makes the point that at about a hundred thousand dollars, it starts to matter. My hundred thousand dollars comes from Nick's research and my research.

55:53When Joe says his hundred thousand dollars comes from Nick's research, he doesn't mean he has a hundred thousand dollars from Nick. No.

55:58Paula Pant:He means - I mean that my number where I say it starts to matter at a hundred thousand dollars comes from Nick's research that initially Nick said that he spent way too much time thinking about his proper asset allocation and not enough about shoveling money in. He really need to think about shoveling more money in. Once you get to$100 ,000, then JL Collins' approach, where it will still get you to your goal, is inefficient. That's when it really begins to show that it's inefficient. And meanwhile, I realized I just went through the roster of JL Collins, Paul Merriman, Frank Vasquez, and now we've introduced Nick Majuli into the mix.

56:38These are all different investment thinkers.

56:40Paula Pant:I'm going to do three more just to confuse that a lot of people. Actually, I do have one more person coming up. I haven't properly introduced Karsten Jeska, also known as Big Earn, E-R-N for Early Retirement Now, which is the name of his blog, all of which we're linking to in the show notes. But Big Earn, and he often goes head to head against both Paul Merriman and Frank Vaz. Yeah, exactly. I don't even know how I would describe his ideas other than he will debate Paul Merriman on the importance of small cap value funds and he will debate Paul Vazquez on risk parity and he has his own unique take on all of it.

57:21The reason that we've had them all on the show is because for FIRE, which is what our show covers, financial psychology, increasing your income, investing, real estate, entrepreneurship, that second I, investing, there is not one agreed upon way to do this. So it's important to get voices from across the spectrum.

57:42Paula Pant:And that is going to be where I end up as well, Paula. And I think the reason why you and I get along so well is because of this, which is, I'm going to introduce one more person who the afforders are going to hear soon, I've heard. I interviewed him a few months ago. He's a historian who has a New York Times bestseller. He's an amazing interview. I can't wait to hear he and Paula talk together. But when I interviewed him on Stacking Benjamins and in subsequent conversations, this historian, Joseph Moore, Joseph said, you know, the problem that we have in investing is that we think that history repeats itself.

58:28And the problem is it doesn't repeat itself.

58:33Paula Pant:It doesn't. And this is where historically through the ages, people have lost fortunes because they thought that what happened in the past was going to happen again in the future. Which if that sentence frightens you, it kind of should. So what we don't know, what we don't know is where the world is going next. And by the way, I firmly believe that. I believe the economy will exist. I also believe in broad indices is a better way to get there than individual stocks. But I also believe that we don't know what's coming up tomorrow, the next day, the next day, the next day. So JL Collins actually said this next thing.

59:19Paula Pant:JL Collins said, the thing that's your best friend is flexibility. And I do believe your best friend is flexibility. The only place I disagree with JL Collins is on how efficiently you can get to flexibility. And the way you get there, the way I saw it work as a practicing professional was if you knew what you had and the conversation changed in a way that it's never changed, the way that it's never been, you're going to be better off if you know what you own and you know why you own it. So when I recommend The Efficient Frontier, based on Paul Merriman's research, by the way, The Efficient Frontier isn't.

59:59Paula Pant:My love of it is based on the fact that it worked for me when I was a financial planner, but I also know that it does better than the J.L. Collins approach long-term. It historically has. And by the way, we don't know that it will, but hang on with me. I believe that if history rhymes, you will do better by having a diversified portfolio. But here's what I really love about it. When you go through the process of watching the video, Paula, that we made about the Efficient Frontier, and you actually work through getting these funds, and you look at where they fall in the Efficient Frontier, and you actually take the time to understand, which is not nearly as hard as people think that it is, when they first approach it, because the words Efficient Frontier are not made to be approachable.

1:00:47Paula Pant:But actually, what they represent is incredibly approachable. Once I got it, I don't know about you, Paula, but once I got it, I got it. It is not hard. I see small cap value way off to the right. I see my savings account way down and to the left. I get the juxtaposition on this chart that Dr. Harry Markowitz won a Nobel Prize for. I understand the relationship now between where small cap value sits, where large companies sit, and where my savings account sits, where treasuries sit, where real estate sits. When I look at them individually, it's fun to play with to see these things. And I start to get the feeling of how they interrelate when it comes to return versus volatility.

1:01:31Paula Pant:And the thing that we do know is volatility is going to happen. Volatility on the upside, the first half of the year, this year. volatility on the downside, everything since the first, actually the last few days as we record this, not, not all that bad, but everything since the first half of the year hasn't been as, as nice. So when we look at volatility, what I saw was people blowing themselves up. And when you put together your own portfolio that is more efficient than VTSAX, but isn't as rigorous and structured and, oh yeah, it's going to work, but you really don't know why, that is the reason people use risk parity.

1:02:16Paula Pant:Because I believe 85 % of the people, I'm sorry, Frank, I believe 85 % of the people using risk parity in our community don't understand what they're getting into. Because they don't understand, they don't understand why do you have commodities and gold and have them separate? And why do you have them in such large numbers that a pro with a client would never use numbers that big? Why would you use those percentages? Why would you put together this portfolio that isn't as driven by equities over long timeframes as history would suggest? and again, I don't know the history is going to repeat itself.

1:02:57Paula Pant:I just know that I know what happens to equities when the economy triggers start to move. When Paula talks about the economy here on the show and what's happening, the response that equities have, have been pretty damn predictable, pretty obvious. The number comes out, the market responds in a way that I get. I don't understand how the risk parity portfolio, I get how it responds as a group. And listen, as I say, I don't get it. I get it. I've studied these assets. I've studied this way of investing. I understand what Frank's talking about. I just agree with Joseph Moore that I don't know that the past is going to equal the future.

1:03:42Paula Pant:And even in the past, Big Earn says the past ain't as rosy all the time for risk parity as it has been in this little sunshine period. So I have a choice. I can lock myself in to a philosophy of investing that demands that I keep it versus I put together a portfolio of asset classes that work together in a way that I somewhat understand. I don't have to be a pro at it, but I at least understand why I bought it. I understand where it sits on the risk versus return graph. And so I understand when conditions change, why my portfolio is moving the way that it moves. Because it isn't the market, in my experience, that blew people up.

1:04:28Paula Pant:It was you. And at some point, I believe that a lot of practitioners of risk parity are going to go, I don't understand this. it's not performing. I don't get why it's not performing. Guess what I'm going to do? I'm going to get rid of it, which could be horrible. And generally, by the way, we make those decisions at the wrong time. So my position about the efficient frontier isn't because it's great. And by the way, I already know, I already know. I'll give this away. I know that the efficient frontier always moves. So I know that when I tell people to learn the efficient frontier, I'm telling you, I think it's going to be suboptimal because the thing that I'm giving away is that I know what optimal is.

1:05:12Paula Pant:I don't know. And I don't think you do. And I don't think Frank does. That's why I like the efficient frontier and I don't like risk parity. Joe, what I essentially hear you saying is you like the efficient frontier because you know why you have constructed your portfolio in the way in which you have. It's like being a chef. you know why every ingredient goes into the dish. And you know that if you add fat, you counterbalance it with some acid, which you counterbalance with some salt, which you know that the acid, fat, salt, heat. Which is a great analogy because I didn't understand that until I didn't read her book.

1:05:49Paula Pant:I watched her Netflix special. And when I watched her Netflix shows and I saw the relationship between those four things, it made my cooking so much better. Right. And so when you know why you're adding various ingredients into a dish, then you're operating from first principles. And so when conditions change, you can modulate accordingly versus if you are just following the recipe as instructed and you don't actually understand why those ingredients are in the dish, then when conditions change, you might panic and throw out the whole recipe entirely and go to a totally different recipe by a totally different chef and also not know why you've got that one.

1:06:29No idea.

1:06:30Paula Pant:You just heard they were better. Right. Oh, this is better. So what you're saying is first principles thinking, essentially. You like the efficient frontier because it has first principles thinking. And because of that, there's better behavioral compliance. Yeah. Stop chasing some. Don't chase Paul's stuff. Paul's brilliant. Don't chase Frank's stuff. I love 95 % of what Frank does. I love the way he He serves the community. I don't like the way he talks to people sometimes in the forum. I think he's sometimes he needs to put some velvet on that hammer, but I think that Frank has done a lot of good.

1:07:04Paula Pant:I just wouldn't believe any of them. I don't believe JL Collins and stick with VTSAX. Cause if I own VTSAX and I don't know why I own it, I just own it because JL Collins said that's, that's not a good answer. Especially when it's so easy. it's so easy to dive into how these asset classes work it's actually kind of fun it's really fun and by the way if you've done the efficient frontier and you're like joe i've done the efficient frontier and i constructed my portfolio but i really don't know how these asset classes work the one thing you and i didn't do paula in that video was i never made this point if you're not sure why these asset classes are together this way take them out take them out and just put them one at a time on the efficient frontier.

1:07:52Paula Pant:So start off with your portfolio, like we taught everybody to create, and then take them out one by one or all of them together and show the points of the individuals. And then you will see, oh, that's the way treasuries look over a 15-year period historically. This is the way large company stocks have looked. You're going to get what the return has been versus what the volatility level has been for that. And when you see them individually, then you get a portfolio that's better than just the individual pieces. Well, Mark, I hope that shed some light on your question. And thank you for inspiring this discussion because it's an important question.

1:08:36Why would you favor an investment philosophy over an alternate investment philosophy. That's what these all are. These are frameworks of thinking about one of the most pivotal questions of your life, which is how to allocate your own personal capital, which is a fancy way of saying, where do you put your money? We've talked about a lot of thinkers who'd have different ideas, all of whom have different ideas about how to manage your money. In the show notes, We are going to link to many of these episodes that, especially if you're new here, you haven't listened to these previous episodes. This is the foundational building block for hearing each thinker in isolation and hearing each one make their case.

1:09:24And when's Joseph Moore coming? He is coming up. I interviewed him right before I left for this trip. Oh, actually, now that I think about it, I interviewed him the day that I flew because I flew to France first before I came to Spain. You did. Yeah.

1:09:40Paula Pant:You did. The morning of. The morning of because I showed up to that interview with my suitcase. Yeah. And I went straight from that interview to the airport. Because you thought about doing this episode with me from the airport. Yeah, from the airport. Yeah, yeah. We were going to record from the airport. And then Joe, I texted you and said, I'm on the verge of an international flight. Too much. Yeah. I really can't do this show from the airport. Let's do it once I land. And so here we are. But yeah, the Joseph Moore episode will air soon. I don't know the date, but it will air soon. Don't miss that one.

1:10:20Paula Pant:I have no idea what Paula, you said, but I'm just going to bet based on my discussion with him and a lot of our audiences listen to me talk to people and you ask completely different questions than I do just based on my discussion with him oh my goodness they're gonna love it you know what I'll talk to the team and see if we can fast track that one well thank you again Mark for the question Joe we have done it already yeah all the new people like, what just happened? Wait, Nick Merriman. Yeah. Jail Vasquez. Who are these people? We will have a very comprehensive list of links in the show notes for anyone who's new here to listen to all of those prereq conversations so that you can hear these different investment philosophies come through.

1:11:11Paula Pant:And they're so good. And it's, and I agree a hundred percent, Paula. I think if you want to really want to know the spectrum of what's out there and how to do things like Mark said, you know, dive in, dive in the more, you know. Yeah. Well, Joe, where can people find you if they'd like to know more? You can find me at the stacking Benjamin show and listen to the part one. We call it the pre-interview for Paula's interview with Joseph Moore. If you just go back through the episodes of stacking Benjamins here, our discussion, and then get ready for Paula's because it's going to be an adventure. I can't wait.

1:11:48Paula Pant:I'm super excited to hear what you talked about. Joe, you're going to be in Alaska next week, right? I will be, yes. We may need to, so that means we might have to miss a Q &A recording. No. And the bad news is I would do this from Alaska. Like Paula's doing it. Well, I'm sure everybody's like, Paula did it from Spain. Joe, you should do it from Alaska. The problem is, I told Paula before we started, I'm going to be at Lake Clark National Park and I will be off the grid completely. So unless there's a way for us to send mental telepathy signals, I'm not going to be able to. All right. Well, you know what?

1:12:33In place of that episode, I'm going to talk to the team and I'll see if we can air Joseph Moore. Oh, look at you. It's Tuesday, August 25th. I'll talk to the team and we'll air that episode. So if order's mom's not saying yes, mom's saying maybe.

1:12:54But you know how you can listen? You open up your favorite podcast playing app and you hit the follow button. Absolutely. Or you go to YouTube, hit the notification bell. we've been a little off track on YouTube lately because we're trying a few new things, but we should be back on a normal YouTube publishing schedule soon. But hit the notification bell on YouTube. Open your favorite Apple podcast, Spotify, Pandora. Open your favorite audio app. Hit the follow button. We've got something like 40 % of the people who listen to this show are not actually subscribed to the show. So if you are listening to this and you are not subscribed, please open your app and hit the button because that is how you make sure that you don't miss any of these incredible interviews.

1:13:40We also have a free handout on this thing called asset location. That's a fancy way of saying, which investments do you keep in which types of accounts? Because you've got accounts with different tax treatments. You've got some accounts that are tax-free. You've got some accounts that are heavily taxed. And you've got some accounts where You eventually pay the tax, but you postpone it. You've got all these, the fancy term is tax exempt, tax deferred, taxable. You've got all these different types of tax treatments in your accounts. What kinds of investments should you put into which accounts? We have a free four-page cheat sheet that walks you through it.

1:14:19Download it for free at affordanything.com slash asset location. That's affordanything.com slash asset location. Thank you so much for tuning in. I'm Paula Pant. I'm Joe Salcihai. And we'll meet you in the next episode.

1:14:39Paula Pant:Which will be after Paula goes to bed, now that it's like 2 a.m. It is. It's 2 a.m. in Spain, but because my body is still adjusted to New York time, I am like raccoon eyes wide awake. We could record another episode, Joe. Oh, look at the time.

1:15:01Thank you.