Every brokerage account asks the same question: how comfortable are you with a 20% decline? Are you conservative, moderate, or aggressive? Joe and OG argue that’s exactly the wrong place to start, and it’s why so many people panic-sell at the worst possible moment. The real question isn’t how you feel about risk. It’s what rate of return your actual goals require, and whether you can stomach the volatility that comes with getting there. Once you flip the order, risk tolerance stops being a personality quiz and becomes a math problem you can actually solve.
What You’ll Walk Away With
- Why “risk” and “volatility” are two completely different things, and confusing them leads to bad investing decisions
- The real order of operations for building a portfolio: goal first, required return second, risk tolerance last
- How standard deviation can turn scary market swings into something you expected all along, instead of something that panics you
- Why concentration risk quietly builds up in portfolios, even for people who think they’re diversified
- A genuinely surprising take on why “getting more conservative as you age” often doesn’t make sense, once you think in decades instead of birthdays
- Real answers to listener questions on emergency fund sizing, late-start Roth conversions, disability insurance coverage, and whether the 4% retirement rule still holds up
Why This Matters Now
A risk tolerance quiz can’t tell you what you actually need your money to do. It just measures a feeling in the moment, and feelings change the second the market gets scary, which is exactly when a plan built on feelings falls apart. Building your investment strategy around your actual goals and time horizon, instead of a gut reaction to hypothetical losses, gives you something sturdier to hold onto when the inevitable rough year arrives. That’s the difference between panic-selling at the bottom and staying the course long enough to actually reach the life you’re investing for.
From the Basement
A Labor Day trivia detour into the 1916 origins of workers’ compensation somehow spirals into a bit about an “employee named Al” being replaced by AI, which is either brilliant wordplay or a sign the basement crew needs a vacation. Possibly both.
Resources Mentioned
Yell Down the Stairs — submit a question for a future OG and Anna episode
Stacking Benjamins Field Kit — the all-in-one budgeting and financial tracking tool
Doug’s Trivia
- On today’s date back in 1916, an act was passed systematizing a claim system that workers could use to ensure that if they were hurt on the job, they’d receive some money. What is the name of this system?
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Other Mentions
Join Us Wednesday!
Tune in Wednesday when we’re asking what financial security is really for as Todd Havens shares how facing incurable cancer changed his outlook on debt, money, and building a healthier financial life.
Written by: Kevin Bailey
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Episode transcript
[00:00:00] opener: Stacking Benjamins is not for everyone. Side effects may include euphoria, increased ability to meet your goals, and aggression from people wondering, quote, “What the hell your secret is?” Stacking Benjamins may be habit-forming, especially if you stick around for the entire episode, wink, wink. Please check with your doctor to see if Stacking Benjamins is right for you
[00:00:21] Doug: Live from Joe’s mom’s basement, it’s The Stacking Benjamins Show
[00:00:36] Doug: I’m Joe’s mom’s neighbor, Doug. And yes, you’re hearing correctly, we’re working hard just like you on Labor Day. I mean, i- isn’t that why it’s called Labor Day, right? I mean the whole nation gets to work. Wait what? They all, they all get the day off but not us. All right, get the union rep in here. Well while we’re here risking ourselves for your entertainment on nearly everyone else’s day off let’s talk risk.
[00:01:06] Doug: We’ve all seen the quizzes but how do you actually gauge your own risk tolerance and create a portfolio that achieves your goals and lets you sleep at night? We’ll help. But that’s not all we’ll also throw in a money saving tip for Starbucks drinkers and OG and Ana are back. They’ll kick off their new season of Money Basics by answering your questions.
[00:01:31] Doug: Of course I’ll share some incredible holiday theme trivia along the way. And now two guys who I can’t believe also showered and showed up on a holiday, it’s Joe and O-G. GG
[00:01:48] Joe: I love how he goes from not even knowing it’s a holiday to amazed that we showered. I think he’s just amazed we showered, OG. Hey there everybody. Happy Monday. Happy Holiday Monday if you’re in the United States. Happy Just Generic Monday if you’re anywhere else. I am Joe Saul-Sehy. Across the card table from me is my partner in crime…
[00:02:07] Joe: Partner in crime when you’re talking finance, not a good phrase, I guess. Partner in helping you with your money stuff, Mr. OG is here. How are you, man?
[00:02:16] OG: I am fantabulous. Oh, I’m so excited to be here. Thank you for having me, Joe. First time caller- … long time listener.
[00:02:23] Joe: I love how we finally get a week in Texas where there’s not three digits in the, uh-
[00:02:28] OG: What part of Texas are you in, bro?
[00:02:30] OG: ‘Cause we are on day 40 of three digits. Well,
[00:02:33] Joe: this side of the basement is now down to 98.
[00:02:36] OG: Oh.
[00:02:37] Joe: Yeah. Good stuff. And you know what? Being out in that type of weather, OG, is risky. We’re gonna talk about risk. We haven’t talked about how to create your risk tolerance, like how to gauge your risk to- Not how to create it, but how to gauge your risk tolerance and how to gauge risk in a long, long time.
[00:02:52] Joe: I mean, we’re always kind of talking around it.
[00:02:54] OG: Mm-hmm.
[00:02:54] Joe: But to go right at it, this is a topic we haven’t done in a while. So you buckled up, ready to go?
[00:02:58] OG: Yes.
[00:02:59] Joe: Excellent. So in just a moment, OG and I, we’re gonna tackle risk tolerance. Get however you take notes ready because we’re gonna help you do this the right way.
[00:03:09] Joe: A lot of people do it exactly the opposite of the way, OG, and I want you to do this. So get that ready. We are going to hear from a couple sponsors who help us keep bringing this to you for the value price of free. We’re gonna hear from them, and then OG and I diving into helping you figure out what risk is the appropriate level of risk and how to confront it.
[00:03:32] Joe: Remember Superman, it’s a bird, it’s a plane? Mm-hmm. It’s Superman. We built the equivalent for your money stackers. It’s a budgeting app. It cancels subscriptions. It protects and helps you build credit. It tracks your net worth. There, there’s so many more. It’s the super app FieldKit. You don’t wanna spend time managing your money, you wanna live, so get Fieldkit so everything is in one place and you stop staring at screens all day.
[00:03:56] Joe: Go out and do stuff. Check it out at stackingbenjamins.com/fieldkit
[00:04:08] Joe: Well, I’m sure if you’ve ever worked for quote “the man” you’ve seen the questionnaire before. How comfortable are you, OG, with a 20% decline? I don’t know anybody who’s comfortable with a 20%. I love a 20% decline.
[00:04:22] OG: Uh, it’s my favorite. It’s like Christmas morning. Everybody loves seeing their net worth drop by 20%.
[00:04:28] OG: It’s like, could we do it every week?
[00:04:29] Joe: I skip all the way to my Schwab account, go look at my Fidelity statement. Oh boy, I’ve got 20% less money. H- how about this one? I love this one too: would you describe yourself as conservative, moderate, or aggressive?
[00:04:43] OG: If you were to sit in a movie theater, would you sit in the front of the room or the middle of the room Have you heard those?
[00:04:52] Joe: No. Does that help you describe risk?
[00:04:55] OG: Yeah apparently according to some risk tolerance questionnaires that I’ve seen.
[00:04:59] Joe: Yeah. Well, if I sit in the front does that mean I like the risk ’cause I wanna pretend the shark’s eating me?
[00:05:03] OG: I, I don’t know what it tells
[00:05:05] Joe: you. I don’t know what that’s all about. These risk tolerance quizzes do it all backwards, and today we’re talking about something every brokerage firm asks you, and it always seems to be in the wrong order: risk tolerance.
[00:05:17] Joe: So instead of asking you to start off with how comfortable you are with declines, nobody is. Do you consider yourself conservative, moderate, aggressive? I had so many clients back when I was a planner OG that would tell me to my face, “I’m super aggressive,” who were the first people that would call me every time the market went down, every single time the market went down.
[00:05:38] Joe: In fact, I still know their names. There were three particular people who- Name
[00:05:42] OG: and shame Joe, name and shame …
[00:05:43] Joe: It has been so long, and I still remember their names, ‘Cause I’m like, “Oh, I gotta call these three people first,’ cause they said they were aggressive, and they’re not. Let’s kick this off with this statement.
[00:05:54] Joe: Tell me what you think about this. I think you gotta start with how much risk do I need to take to reach my goal? I mean, OG, isn’t that, isn’t that where this really, this conversation needs to start around risk?
[00:06:07] OG: Well, I, I think that, um, it might even need to start before then. With your permission, I would like to talk about just even that word risk.
[00:06:17] OG: I think we use it wrong. I think it’s okay how we use it ’cause we are meaning what we mean. The reality of language is such that when you use certain words they evoke certain emotions, even if you’re using them incorrectly, and we’ve largely accepted that the incorrect version is the correct version. I think that there’s an opportunity to clean up the language a little bit, and all of a sudden it changes the meaning which then changes the emotion of the meaning, which now makes it a little bit less impactful maybe.
[00:06:49] OG: So risk on its own means chance of loss. When you’re looking at an endeavor, whether it’s an investment or it’s a, you know, an activity that you’re gonna do, um, you go climb Mount Everest, well, there’s a risk, right? The chance, there’s some chance that you will lose, literally lose. You may fall off the mountain and bang, somewhere in that journey you realize you’ve lost.
[00:07:13] Joe: The final lost.
[00:07:15] OG: Yeah. With investing, especially with how most people invest, which is broadly diversified. Even if they’re not broadly diversified, they do package products, right? Yeah. A mutual fund, an ETF, you know, even if it’s a s-single theme, it’s still pretty diversified in that theme Rarely do people have all of their net worth in one thing.
[00:07:38] OG: Some business owners do, some highly compensated executives have one stock position that incorporates a lot. That’s different risk than your investment account that’s in your Roth IRA that has three Vanguard funds.
[00:07:53] Joe: I am gonna wanna by the way… And I know you’re going away from this which is why I want to just bring this up now.
[00:07:58] Joe: Yeah. I do want go over th-the different types of risks ’cause people generally are talking about the one I think where you’re goin’, but there’s this laundry list of different risks that we don’t think about because we’re so obsessed with the one.
[00:08:10] OG: Yeah. Well, I, I would submit to the court that what most people think is risk is merely volatility.
[00:08:17] OG: And if you want a even a cheaper word than volatility or phrase, you could just say up and down. And all of a sudden, that surely takes a lot of, a lot of stress out of that word. You know what I mean? Because if you know going into it that you own these companies and they’re for good or for bad priced every single nanosecond virtually 24/7, 365 now, they go up and down.
[00:08:48] OG: Mostly they go up over long periods of time, but on occasion they go down, and frankly on occasion they go down quite violently for a short period of time. But you’ve never lost anything. You know what I mean? If you own an individual company, which is a different type of risk that w– that y- like you talked about.
[00:09:06] OG: But if you have a mutual fund or you have an ETF, I don’t even care what it’s invested in, the chance that Vanguard’s total market index fund shows up as zero on your statement one day is zero. Because you’re assuming that all the companies in all of the world all go out of business all at the same time on the same day.
[00:09:29] OG: That’s just not realistic. And if it is, if that does happen, there’s j- we got all sorts of other problems coming up. If we’re talking about what I think we’re talking about, which is what is my tolerance for the ups and downs of my investment account, that’s not risk. That’s volatility or variability, and more specifically, it’s just kind of some ups and downs.
[00:09:55] OG: Risk, on the other hand, is a chance of loss, and to your point about the single stock exposure, there is a chance of risk there.
[00:10:03] bit: Sure.
[00:10:03] OG: That is risky. If you have, you know, if you work at ABC Company, and you’ve been getting stock options, and you bring in RCUs, and you’ve gotten unqualified options, and you’re a senior VP, and you make 300 grand a year but you have seven million of your net worth, uh, seven of your $8 million net worth is in ABC Company stock, that is a risk because there is a chance that that single entity does go to zero.
[00:10:27] Joe: This is why when we’re thinking about volatility, the main risk that people think about, this is why I think we start with the plan and what does the plan demand? Because often we don’t think about all the levers. We think about the fact that, well, I don’t like volatility, or I do like volatility, so if I get rid of the volatility in my portfolio, the chance of a return goes away.
[00:10:49] Joe: So if my plan needs only modest growth, and my risk in my portfolio right now has a lot of ups and downs, there’s a lot of volatility, I might be able to pull that back, OG, and not have any consequences. But if my plan needs these heroic returns to get the early retirement dream or the, you know, huge retirement dream that I want or whatever the goal is, that creates a whole different set of conversations.
[00:11:18] OG: Yeah. And recently, when you’re talking about volatility, everyone likes the upside number v- of volatility. Yes. Everybody loves that part because, you know, when you’re looking at the Monte Carlo simulation or you’re doing the Excel spreadsheet or you’re meeting with your planner and they say, “Oh, well, we’ve averaged, uh, we’re,” you know, “we’re averaging 8% of return, you know, on, on your portfolio.”
[00:11:40] OG: Or, “We’re forecasting” You know, “this is what we’re modeling out for our scenarios.” And you get 10, everybody’s like, “High five! We said eight, we got 10 baby, let’s rock and roll.” Or in the last, you know, five years, it’s more like, “You got 27, you got 19, you got 32.” That is also volatility. That is the up part of the up and down.
[00:12:03] OG: So I don’t know who needs to hear this, but if you get that side, you gotta be kinda okay with the other side. And if you say if the market averages 10 And this year we got 12, I believe that you should understand that at some point in time an eight’s coming to get back to 10. You know, like if you believe that’s gonna, you know, kinda even out over time.
[00:12:31] OG: If you got a 32 one year What might you expect to have happen to get… You might not be surprised if you get a minus 20 because then you are 10. You know? And I know it’s simple and, you know- Sure … some math person’s gonna be like, “Well, that’s not how ma-” I c- I understand. I’m just trying to make an example here.
[00:12:51] OG: But that’s part of the trade. That’s part of the trade of owning companies, and, you know, you alluded to this earlier, um, it’s part of the, the all important decision that you’re making which is if I’m gonna be an owner of companies because I need to have inflation protected growth so that I can make my financial goals happen, this is the trade that you make.
[00:13:14] OG: You’re gonna have every so often, you’re gonna see a big minus. That’s not a risk. It’s not gonna go to zero. That is not a zero. That is just normal ups and downs. If people educate themselves more about this sort of stuff, then it becomes more palatable. When we talk to clients about this, I’m like, “Look, there’s never a scenario where we get to call,” you know, “for an annual review” and go, “Hey, Joe, man, great news.
[00:13:43] OG: Hey, we’re down 19% just like we told ya.” That’s fantastic. “How awesome is that? High five buddy. Woohoo. Party on.” We’re right
[00:13:49] Joe: in the range, right in the range.
[00:13:51] OG: Just like what we thought. Uh, you know, the market itself’s down 22, so you beating down 19. By my math, we’re plus three. No. Dude listen, minus 19 sucks.
[00:14:02] OG: Minus 15 sucks. Minus 10 sucks. Minus five is, like, palatable, still kinda not great. If you see 10, 20, God forbid, 25 or even a 30 someday in your life, which happens, like, that is a crappy day. Like, that’s a crappy year. What has to happen in the economy for the valuation of companies to go down so much? The future valuation of companies.
[00:14:29] Joe: You got employment numbers that suck. You might have interest rates that suck.
[00:14:31] OG: Your buddies are getting laid off. Your job’s in jeopardy. You know somebody that is going through bankruptcy. Your dog is probably sick at the same time as this.
[00:14:42] Joe: Uh, your
[00:14:43] OG: life is a country music song. You need major car repair.
[00:14:44] Joe: Right, yeah.
[00:14:45] OG: You know? Like- Yeah …. everything that can, the guy you gal you wanted to be elected is not. So it’s like literally everything that could go wrong is going wrong at the same time, and oh, by the way, your portfolio’s down 30%. It’s like this is a crappy time.
[00:14:59] Joe: Just kick me.
[00:15:00] OG: But that’s the part. That’s the trade.
[00:15:02] OG: The trade that you make is that in order to get stock returns, in order to get those average of 10s that we all love to get, and, you know, even really love to get the 12s and the 16s and the 22s and the 31s, those are really awesome too In order to get those you have to stick through the minus 10s and the minus 20s.
[00:15:23] OG: And once in your lifetime a minus 30.
[00:15:26] Joe: Well, and here’s why I like beginning with the goal and beginning with the plan is because if I know what I’m spending the money for, and it’s not just this nebulous bag of money… In fact, the more I- the more I research retirement OG, the more I see these people that have just built a bag of money they’re frustrated all the time ’cause they really don’t know what they’re chasing.
[00:15:43] Joe: But the people that have these much more concrete goals tend to have a happier retirement. They have a happier existence because a dollar doesn’t equal this Scrooge McDuck pile of money. It equals a thing. It equals an experience that I get to have or, you know, a dream that I’m … I get to fulfill. When I start with the goal amount, what do I need?
[00:16:03] Joe: And I know what the time horizon is. The time horizon helps me pick the investment right. I’m gonna use something different if it’s three years away than if it’s 15 years away so that’ll cut your risk right away. You’re not gonna go into a, you know small company stock when it’s three years away. You’ll stick with your high yield savings account.
[00:16:20] OG: Mm-hmm.
[00:16:20] Joe: When I know those things, then I know how much I’ve already dedicated toward the goal, I know what my savings rate is, it creates this really simple formula which is I need to still save so much money and get so much rate of return. And that rate of return that I need then becomes my number that I look at when I’m thinking about the volatility that I’m gonna have to endure to get there.
[00:16:46] Joe: What I always liked doing was I go through that process and then I go “Hey Mr. Client,” or hey to me, “I need an 8% rate of return.” Here’s the investments historically that have done that. Can you stomach that? Is that stomachable?” And if the answer is “Oh no God I can’t do that” well then the cool thing is we’re not talking about risk tolerance anymore OG We’re talkin’ about figurin’ out your budget so you can save more money.
[00:17:12] Joe: Or we’re talking about the goal maybe push back the goal a couple years so that you can, you know be more conservative with the investment strategy but you don’t solve it with a risk tolerance quiz. ‘Cause let’s say that I just say that oh yeah I hate risk i hate 20% down. To your point the down comes with it.
[00:17:28] Joe: You gotta buy it y- y- you gotta buy the down to get the up So if you get rid of the down Well then you’re safely never reaching any of your goals If your, if your goal depends on it
[00:17:40] OG: well I mean Thinking of it this wa- th- th- I like to look at things as like wild extremes Because I think it puts a lot of things in perspective And it’s easier to understand the decision matrix when you use like really obnoxious type of timelines or whatever.
[00:18:00] OG: So if you said, “I don’t wanna have any risk at all.” Okay, I don’t want any v-… And, and we can substitute from here on out, we can substitute the word risk when we might also mean volatility. So uh, that’s what I’m gonna say. But you say, “I don’t want any risk.” Awesome. We have a product for that. We have a tool.
[00:18:17] OG: It’s called treasuries, and– Or your bank account, same thing, right? So we have a tool for this If you added up all of– Like if you took your living expenses and kind of forecast them out and say, “Okay, I’m 40 years old today, and, you know, I spend, uh, ten thousand a month, then I’m gonna for- you know, do some inflation.
[00:18:34] OG: So by the time I’m 60, it’s this amount,” right? So it’s basically double. And then from 60 to 65 to 70 to 75 to 80, I think I’m gonna live to be 90 like the average couple, you know, and you just add it up all those years. Think of it this way. You’re going down the road of life every so often you gotta pay a toll, right?
[00:18:51] OG: So we can forecast what those tolls look like when, when you just add inflation to your living expenses, right? If you added up all of those toll booth expenses every year of retirement from sixty-five to ninety, whatever, with inflation, and then you went back to your income today, you would not have enough money if you saved every dollar of your income from forty to sixty-five.
[00:19:14] OG: No taxes, no savings, no living expenses, no nothing. It’s just not physically possible ma- or mathematically possible to save enough money with no return, no inflation adjusted return, to have enough money in the bank. So now you’re left with… If that’s off the table, that’s that extreme, right? I can’t take zero.
[00:19:35] OG: The alternative is I can try to like, you know, lever my portfolio, invest in the most aggressive things in the universe, wild swings of my portfolio plus minus sixty percent a year.
[00:19:48] Joe: Kelce.
[00:19:48] OG: Nobody wants that either. Kelce. Right. I can– And look, that’s an option. I m- I mean, like we can play that stu- you know, that, that, that extreme stupid game of saying, “Well, if I’m not gonna be cash maybe I’ll just put a hundred thousand dollars on the Lions to win the Super Bowl.”
[00:20:03] OG: Terrible bet. Never gonna pay off.
[00:20:05] Joe: Great bet.
[00:20:06] OG: Ever.
[00:20:07] Joe: Probably gonna win it all. This is the year, man.
[00:20:10] OG: This- This is the year. You know, finally. Easy
[00:20:12] Joe: with the stock.
[00:20:13] OG: So, you know, I love lions. It’s f- you know, I hope they win one day, one of these years.
[00:20:19] Joe: But, but
[00:20:20] OG: we were s- One of these years bro is gonna be the year.
[00:20:22] OG: OG and I were- And there’s gonna be somebody that says, “I sh- I knew it! I knew this was the year! I shoulda, you know, back in ’26, I shoulda bet the farm on the twenty thirty-five Super Bowl”
[00:20:32] Joe: And just to be clear Stackers, OG and I were talking about this over beers back in nineteen ninety-seven. So …
[00:20:37] OG: Yes.
[00:20:38] Joe: This is the year.
[00:20:39] OG: This is the year. I feel it. You know, so you gotta accept some level, you gotta get some level of return. And what you’re saying from a planning standpoint, which I agree with wholeheartedly, is when you take random risk tolerance quizzes, it doesn’t take into consideration the reality of what’s going on.
[00:20:58] OG: Look, if I had the opportunity to literally take no risk in my life with my money, I would do it. That’s a better experience for me. But I don’t have the luxury of making thirty million dollars a year and only spending, you know, one and being able to save a bunch into my treasury account and, and make it work I got some philosophical differences with why you would even do that, even if that was the case.
[00:21:24] OG: But just on the math. So if I’ve gotta take sum, the next part of the plan is to say, “Okay, so if I can forecast what my income is gonna– my income needs are gonna be,” so I know my living expenses and I can do all that calculation, I know that. Now, I can add up all those cash flows and figure out, okay, well how much do I need when I get to retirement?
[00:21:44] OG: Like, what’s the bucket size need to be? You know, it’s $2 million, it’s $5 million, it’s $1.2 million ’cause I got Social S- you know, whatever. Now you know what that is. Now you can say, “Okay, well here’s what I have to get to, here’s what I have today Here’s what I’m saving. ‘Cause you can’t… Just ’cause the plan said, you know, what if the risk tolerance thing says, “Well, you just save 10,000 a month”?
[00:22:05] OG: Well dude, I don’t make 10,000 a month to save. That’s a stupid thing to do, right? Here’s how much I’m saving, here’s how much I have, here’s how much I’m trying to get. The variable that you can solve then, which is what you’re getting to all this, Joe, is now the rate of return. So w- how fast does my money have to grow?
[00:22:21] OG: I know this bucket is the size I need. I know this is how much I have today. I’m saving X dollars per, per month. How fast does the money have to grow? And when you solve for that, it becomes more of a decision of, what are the tools that are gonna fill that bucket to get that number? Instead of, well, what’s my risk tolerance, or what, you know, how do I feel about this?
[00:22:43] OG: It’s like, how I feel about it is immaterial.
[00:22:46] Joe: It’s so
[00:22:46] OG: irrelevant. I’m solving for a, for an outcome. If I need 8% to reach my goals, I need to go fill my investment account with a bunch of stuff that gets 8%. Problem solved. You know, if my investment account says, or if my investment calculation says I need 17%, start shopping for 17% rate of return stuff.
[00:23:07] OG: What you will find, that don’t exist. Okay, now you gotta go back to the drawing board. Do I… Well, I can’t retire at 60, I gotta retire at 65. I gotta save $500 a month, not 300. I’m gonna spend a little bit less money in retirement. I’m not gonna spend 10,000, I’m gonna spent 9,000. There’s a lot of variables.
[00:23:23] OG: Yeah,
[00:23:23] Joe: and I love this because now you’re dealing with all the levers instead of just the one lever, how do I feel? And you’re being realistic with what’s going on in your life. Like it’s in s-… Yeah, like it’s in some type of a vacuum. You know? Yeah. Your risk tolerance isn’t in a vacuum. You’re now, you’re now achieving for the goal.
[00:23:36] Joe: You’re going to get it.
[00:23:37] OG: It gives you the power, when you’re looking at it through the eyes of, “well, what do I have to do to reach my goal?” Now, all of a sudden, you’ve taken all the stank off of that. You’re j- now you’re just shopping for the thing that solves the thing, right? You’re not gonna look at treasuries, because you go, “Well, hold on, what do treasuries do?
[00:23:55] OG: Oh, three? No, no, I don’t, I don’t need three.” Can’t do it. “The eights. What are the eights? Oh, large company stocks. Yeah, yeah, I’ll take some of those. That, that gets eight. Uh, small c- international.” You’re just shopping in the, in the area.
[00:24:06] Joe: Yeah, you’re no longer going for what’s the hot investment. You’re going for I have this goal, there’s this wide world of investments, 85% of them no longer matter.
[00:24:15] OG: Yep.
[00:24:16] Joe: And now my decision-making process is so much cleaner. It’s so much clearer.
[00:24:19] OG: We’re right now finally replacing our dishwash- well, we’re in the process of it. And, and we’ve, my wife, not me, has made a list of all the things she wants in the new dishwasher. You know, when you go to Nebraska Furniture Mart, and you’re like, “I’m shopping for dishwashers,” they’re like, “Well, here’s the 17 aisles of dishwashers.
[00:24:37] OG: Which one do you want?” Yeah, good luck with that. You’re like, “I don’t have a frigging idea. Like, I guess maybe a silver one?” They’re like, “Okay, these are all silver. Now which one?”
[00:24:48] OG: “I recognize that name. Is that a good one?” “Yeah, that one’s, that one’s great.” You know? “That one’s awesome.” But instead when you make a list of like, well what do I want? I need something that does this. Here’s a pain point that we’re we’re trying to fix. Like it doesn’t clean bowls for crap in our existing one so this one has to have
[00:25:04] OG: We need comments on this one that’s like gets my bowl sparkling clean. Like that’s the one I’m after
[00:25:09] Joe: right? Right. I want it to run quiet. I want to have the two different sprinklers- Yeah … the one in the middle and the one at top or- Yeah
[00:25:14] OG: Or whatever. She wants to be able to clean it. Like she wants big parts that are take outable so that we can clean it because, you know, it helps the longevity.
[00:25:22] OG: Should put all those things into ChatGPT and chat goes, “Well here are your two options.” Right. Which one of these two do you like the best It’s not like which we were talking to somebody earlier this week about their 401allocation. And you know what does Fidelity do? They go, “Hey great news, you can invest in anything you want.”
[00:25:43] OG: Literally anything. Not only is here’s the list, which is two pages long of stuff, there’s also this little line item at the bottom that says brokerage link. When you click on that and you go well what’s up– What have we got over there? Anything.
[00:25:56] Joe: The whole world.
[00:25:58] OG: Wha- wha- what do you mean anything? What do you want?
[00:26:01] OG: It’s like, it’s like the street corner guy right Like man I need a little something. Like well what do you want? I got a little everything You know. Psst Hey Over
[00:26:09] Joe: here
[00:26:09] OG: Yeah yeah just so th… Just a little taste. I need a little taste of some, some AI ETF Give me a little taste of some AI ETF. You got a little SpaceX under there?
[00:26:19] OG: Gimme a little SpaceX
[00:26:21] Joe: If you’re wondering by the way w- how to measure volatility There’s lots of different ways My favorite one looks at exactly what you’re talking about OG And in your statement at work In your brokerage account You can dive into this with any of the funds out there It is a metric called standard deviation And standard deviation I love standard deviation when I was an advisor I loved standard deviation because uh Okay
[00:26:49] OG: nerd
[00:26:50] Joe: W- Well a couple weeks ago I was coming back from Anchorage On my Alaska trip Snowboarded And before we take off As
[00:26:58] OG: one does
[00:26:59] Joe: Before we take off The captain goes hey At the beginning of the flight and probably for the first twenty minutes We’re gonna have the flight attendants stay in their seats Because we’re expecting some pretty serious bumps as we, as we go So he tells me ahead of time That it’s going to be a bumpy ride So guess what When he takes off and it’s hella bumpy OG I mean we are going back and forth We got this crosswind that’s crazy You know This big old jet airliner just d — Going left and right Up and down And and I didn’t panic at all ’cause he told me ahead of time I knew ahead of time what it was gonna be That’s why I like standard deviation So if you dive into your mutual fund or your ETF And you find the line that says risk measurements Standard deviation and math nerds Again I’m gonna make this easy I’m not gonna make it % accurate in a mathematical sense But let’s say this fun has over the last ten years A return of twelve percent And its standard deviation is 15.
[00:28:06] Joe: This means on most normal years, again we’re just gonna keep this easy for brand new people, math p- so please don’t write me ’cause I understand it’s more complicated than this, that ten year number could be 15 points either way meaning you could get negative three. You could also have positive, positive 20, uh, you know add 15 to whatever I said, oh, duh, 27 but generally it’s gonna be a fairly high number when you’re looking at numbers like 12.
[00:28:33] Joe: It’s gonna be higher than that frankly. You could get numbers that are in the double digits. You’ve talked about before on the show where -14 happens fairly often in the stock market. It’s a regular thing. It’s within the realm of the standard deviation. So I like it when I pick a fund, I go look at standard deviations so that my panic when the market drops and I look at the standard deviation I’m like, “Oh, this is regular.”
[00:28:58] Joe: Like this, this is just… It’s what happens when you lift off from anchorage. You have a little bumpiness as you’re, you’re leaving town. I really like diving into standard deviation. It’s a great volatility measure for me just so that I know what the bumpiness is. And when I was an advisor I’d look at standard deviation with people and I’d be, uh, I would ask them.
[00:29:18] Joe: I’d say, you know, “Is this the type of ride you’re looking for?” And i- and if it’s not, if you can’t handle the negative side of that standard deviation only the upside then we’ve gotta figure out a way to do this in a different manner
[00:29:33] OG: Yeah. Especially in the context of your overall goal which is you know so what don’t you– if, if you don’t and this is tool that we are supposed to have then we have to start changing…
[00:29:46] OG: You know then we have to start changing the goal
[00:29:48] Joe: Yeah ’cause because the real risk OG is not the market to your point. The market isn’t the real risk. The real risk if you’re broadly diversifying your goal? The real risk is you’re gonna blow up your plan And nobody ever blows up their plan at the optimal time.
[00:30:01] Joe: Like I never, I never saw somebody blow up their plan at the right time. It’s always at the most horrible time when there’s no “I just can’t take anymore! I just oh my God I can’t take it anymore. I gotta dump it now.” And you lock in these losses because you bailed on your plan. That’s the big risk.
[00:30:19] Joe: Speaking of risk because as you mentioned earlier, and I love that you reframed it volatility ’cause thinking about up and down is good. As we mentioned early on, there are several different risks though the one that we’ve been talking about is market risk. I wanna talk about just three others that our stackers will see fairly often.
[00:30:37] Joe: And one that you mentioned briefly that you see a lot in portfolios probably when you first meet with people OG is concentration risk. Can you talk a little bit to concentration risk?
[00:30:49] OG: Well, it’s just a, I mean a broad definition here. It’s the, you know narrowing of your portfolio thesis to one particular idea.
[00:30:57] OG: And this is very common two ways. One is unintentionally where you know you’re getting some stock options or you have the ESPP at work. Your company matches and company stock and it’s just you haven’t really done anything with it. And now all of a sudden you wake up one day and you’ve got a bunch of company stock.
[00:31:16] OG: It might even be a company you don’t even work for anymore. It’s just now it’s a large portion of your portfolio. And the stress or the tax bill associated with unraveling some of this gets a little high and you know now we just got this decision of like do I pay the tax man or do I accept the volatility and like, you know or the risk as you said.
[00:31:35] OG: Or how do I deal with this? So most people’s way of dealing with it is I’ll just put my head in the sand and uh hopefully it’ll work out. Best wishes. So you know we want to develop a plan on that that’s tax smart as well. The other kind of concentration risk I think is more intentional. People don’t see it as a risk but it really is.
[00:31:54] OG: It’s where you start hearing things and you say “I heard that, uh, technology is doing pretty good. I should have some tech.” And so you buy a tech fund. And then maybe th– Maybe that tech fund actually does pretty well this year and so you buy a little bit more tech fund. And then on a podcast somebody says, “You know Google’s poised to do some pretty good stuff,” So then you go buy Google stock.
[00:32:16] OG: And then you can’t have Google by itself, so you buy some Nvidia and Apple stock too in addition to your… And now from an allocation perspective, your investment thesis has been kinda whittled down to US large tech stocks , you know with a smattering of other things because when you’re rewarded for making those decisions, ’cause sometimes it’s, you know, it’s bad to be r- punished for it but sometimes it’s also bad to be rewarded.
[00:32:43] OG: When you’re rewarded for it especially if you were somebody who invested in some of these things as tech as an example and it did really well, and then you invest more into te-… Kept on doing really well. Now all of a sudden you have this same problem of like a whole bunch of a percentage of my portfolio is in this one idea, and I’ve been rewarded for doing it.
[00:33:01] OG: And so what’s the emotion there? The emotion is like “Why would I make a change here dude? I’m slaying it.” I gotta
[00:33:06] Joe: keep it. This is the engine.
[00:33:08] OG: Yeah. So obviously there could be some tax issues wi-with unwinding it, but the problem is and what you have to kind of ask yourself is, do you feel lucky? Well, do you pal?
[00:33:17] OG: No. Um, the problem is, is like I can’t prove to you that that idea whatever it is, you know we’re kind of talking about tech but like whatever your focus has been on your portfolio, I can’t prove to you that you’re wrong anymore than you can prove to me that you’re right. No one knows what the future’s gonna be, and the risk is when you have that single idea, is that that single idea stops being the, the thing that’s working.
[00:33:48] OG: And the whole purpose of diversification is you never have to say you’re sorry for anything. You have like one of everything. And so you have some tech, and you have some industrials, and you have some old companies that have been around a long time, and you have some brand-new ones that are up and coming, and you have US-based ones and some non-US-based ones, and whatever happens to be, you know, in vogue, you have a part of that, you know?
[00:34:08] OG: But you’re never r-… You’re never making a killing, but you’re never getting killed.
[00:34:12] Joe: Yeah, this, uh, concentration risk truly is a d- a double-edged sword. Like if you wanna get rich quick, if you wanna get rich quick concentrate on one or two things, OG.
[00:34:21] OG: And be right.
[00:34:22] Joe: That’s an important component. Y- w- and be right, yes.
[00:34:24] Joe: And if you’re wrong, you don’t gotta worry about it. ‘Cause, ’cause all the money’s gone. Try again. It becomes much more of a bet. Concentration risk is how people get rich off the stock market. It’s also the vast majority of people go broke in the stock market. And I dunno about you, but I prefer to bring in my money other ways and then use the stock market to maintain it and to have it reach my goals.
[00:34:44] Joe: I’m not looking at the stock market to make me wealthy. I’m looking at the other things that I do in my life to, to make me wealthy. Number three is inflation risk. OG, you covered this one extensively. If your money’s not beating inflation, you gotta save dollar for dollar or even more what the goal’s gonna be, and that’s just- Mm-hmm
[00:35:03] Joe: that math ain’t mathin’. But number four, so those first three, market risk, concentration risk, and inflation risk, those are all risks which are, you know, market risks. The fourth one really is a planning risk, OG, and this is one people don’t think about a lot, but this was something that you think about, I know, all the time, which is a longevity risk.
[00:35:21] Joe: Longevity risk is something financial planners I think think about much more often than people just trying to get by and manage their portfolio on a day-to-day basis
[00:35:33] OG: I fully recognize that there’s a game that we’re all playing which is try to exactly time out how much money I need for how long I’m gonna live so that I can spend the exact amount.
[00:35:45] OG: If you’re hiring us to help you with that, I want to err on the side of having too much . That’s, that is the side I wanna Oh, we
[00:35:54] Joe: predicted last month was gonna end your life.
[00:35:57] OG: Yeah.
[00:35:58] Joe: I’m so sorry.
[00:35:58] OG: Yes. Because I mean look, golly, the last three weeks what are the two most mind boggling things science wise that have come out?
[00:36:09] OG: Have you caught any of this Joe?
[00:36:10] Joe: Uh, I was in the wilds of Alaska.
[00:36:12] OG: Scoreboard. Um, Moderna came out with something that ostensibly cures skin cancer and um, some other company, I don’t know which one it is just got FDA approval on a drug that profoundly changes the life expectancy for pancreatic cancer.
[00:36:29] Joe: Wow! Oh, that’s a big one.
[00:36:30] OG: You had… Yeah, absolutely it is. I have a friend who had a blood cancer if he woulda had it a year earlier, this is how he tells the story, if he woulda had it a year earlier they didn’t have the medicine that cured him a year earlier. So the things that we know about today, you know, we just have no idea what’s gonna happen in the future.
[00:36:49] OG: So I would rather err for you to, you know, live a little longer and have a few extra bucks So I know that that’s an issue. But the o– the other part of it is more just, um, kind of philosophical, which is I just can’t wrap my head around… And I was talking to somebody a couple weeks ago about this. The question was, “Okay, you know, I’m 45,” like, “when do I start getting more conservative in my portfolio?”
[00:37:11] OG: I was like, “Never.” Why would you ever do that? You’re finally to the point– So you’ve saved your whole life, right? You’ve saved, you’ve invested, you lived through Y2K, you lived through the Great Recession, you lived through the COVID debacle of the market going down 35% in 17 days. You lived through 2022 when the market took a crap down 20%.
[00:37:31] OG: You stayed the course, you’ve done all that. Now you’ve got this portfolio that’s finally corpus that you can draw from for the rest of your life and never run out. It’s fantastic. And now you go, “Nah, I’m good, bro.” Like, like, you know, if you were the person who had three million bucks a year ago, today you have close to four million if you kept it invested, right?
[00:37:52] OG: The difference of, like, I’m retiring, I’ve got my lips above water. If everything works out, I’m good. The difference between that and having twice as much of that is night and day. Like, in terms of your experience, the experience of the things around you that you care about, the people, the places, the things that you wanna support in your life.
[00:38:10] OG: Don’t mistake this. You need to have money that’s available for tomorrow. If you’re gonna retire at 65 and you’re 63, you need age 65 money, 100%. But the vast majority of your money is 68, 69, 70, 71, 72, 73, 74. You know, like, it’s way out there. Future
[00:38:25] Joe: you. Future
[00:38:26] OG: family. So why in the heck would you have any sort of different investment philosophy for that money that you’re– You know, you’re 65, you need money when you’re 95.
[00:38:35] OG: That’s 30-year money. That’s like asking a 35-year-old Well you know, I mean, you’re almost to retirement so you should probably be conservative. You know? W- like no 35-year-old would look at 65 and say, “Well I should be conservative today with that money.” So inflation risk kind of ties into longevity risk I think which is the fact that your purchasing power loses value or your dollar lo-loses purchasing power I should say it a better way.
[00:39:02] OG: The only solution to that is owning companies, so own them forever.
[00:39:06] Joe: And think timeframe not your age. I think – Yeah … that’s the big point. 35 to 65 is a 30-year timeframe. 65 to 95 is a 30-year timeframe. Think about when I’m gonna use the dollar not my God I’m 65 years old everybody says this chart on BuzzFeed said I’m 65 years old so I need-
[00:39:22] OG: BuzzFeed.
[00:39:23] OG: 80%-
[00:39:23] Joe: I
[00:39:23] OG: forgot about that company or that site …
[00:39:25] Joe: I need 80% of my money in bonds or whatever it might be. Yeah. I don’t know. Let’s package this up stackers into usable stuff. The order goes this way. Start off by defining your goal. Number one, you’re not going to risk picking the wrong investment as much.
[00:39:42] Joe: Number two, you’re gonna be thinking about your time frame. Number three, you’re gonna be happier because happier people are people that are planning for specific events not just building a pile of indeterminate indiscriminate money. Number two, determine what return that plan needs and then number three, look at the volatility that comes with that plan and then if you can’t handle that volatility then make a change.
[00:40:10] Joe: Don’t ask yourself whether I’m comfortable or not. I love OG when you said that’s immaterial. It only matters after you know what the plan is. Can I stomach my plan? If you can’t change the plan don’t try to change your personality right?Then number five, look at the risks inside your portfolio, the market, the concentration, the inflation, the uh interest rate risk, uh l-longevity risk those things.
[00:40:35] Joe: So I wanna wrap with this build the plan first and then take only the risk the plan actually requires and that you can realistically stick with. That’s the way to get your goal. Hey I see Doug coming back to the table. I dunno where he’s been this whole– I, I think he’s realized that it’s Labor Day OG so he’s gonna work as little as possible.
[00:40:52] Joe: It’s about time you got back here dude. Uh Doug coming down to share today’s trivia question afterwards we’re back with season three of OG and Anna can’t wait to hear because they are tackling four of our stacker questions. You oughta hang out and hear that right after Doug. Doug what do you got today?
[00:41:14] Doug: Hey there Stackers. I’m Joe’s mom’s neighbor, Doug and man this has been frustrating. Last week I sprained my vocal chord. Well, I mean, I could tell it was about to go so I filed a claim as quickly as possible and it got denied. Maybe that’s because six months ago I also filed a claim a little prematurely.
[00:41:31] Doug: I heard some guy named Al is trying to take my job so I filed for unemployment like right away. Gotta set your sights on the future, am I right? That said, today is the anniversary that rightfully ensured that if someone was injured on the job they’d receive compensation. What type of claim is it that was instituted back in 1916 and still exists today?
[00:41:53] Doug: I’ll be back right after I look into this guy Al. He’s apparently got a can-do attitude because they say he’s coming for your job too Stacker. Maybe you should come with me to file for unemployment
[00:42:13] Doug: Hey there Stacker. I’m Al Lover and guy who apparently is ready to play alongside the robots, Joe’s mom’s neighbor, Doug. Okay, so I asked Joe what the chances were of Al taking my job, and he said a little less than 100%. That’s a great number, right? Actually, what he texted back was that it isn’t Al who’s gonna take my job.
[00:42:34] Doug: Apparently his name is AI. I always thought that was an L. Must be one of those Eastern European names, AI. But nothing to worry about now. So I’ll go on to the trivia question, which was this: On today’s date back in 1916, an act was passed systematizing a claim system that workers could use to ensure that if they were hurt on the job, they’d receive some money.
[00:42:57] Doug: What is the name of this system? If you said workman’s compensation, you got it right. Man, and on that note, I wonder if there’s a claim form that lets you get out of washing the tailpipe at Joe’s mom’s Harley. I’m off to find out. See ya
[00:43:17] OG: All right Anna we are gonna be back for an abbreviated season three this session. This season I guess
[00:43:24] Anna: Mm-hmm
[00:43:24] OG: But no less hard hitting.
[00:43:26] Anna: No.
[00:43:26] OG: High quality work that you’re expecting after our little summer hiatus. Did you have a nice summer?
[00:43:32] Anna: My summer was gorgeous. We did so much fun in the summer sun. How about you?
[00:43:37] OG: Fun in the summer sun yeah
[00:43:38] Anna: mm. Mm-hmm.
[00:43:39] OG: Yeah it feels like its already fall weird pumpkin spice latte season.
[00:43:43] Anna: For you these were telling me it was like 100 degrees.
[00:43:45] OG: Yeah but it’s is … You can… It’s PSL season.
[00:43:48] Anna: Okay.
[00:43:48] OG: Anna okay.
[00:43:49] Anna: That’s true. You can get it iced too.
[00:43:51] OG: Ugh No thanks. All right, so we are going to start today with a little Q&A.
[00:43:57] OG: We kind of had, uh, a, a piled up a number of questions that came in over the course of the summer and just some follow-ups and stuff that we had in seasons one and two, so we’ll hit those. And the rest of the year, or the rest of this season rather, we’re gonna dive into some of those deci- retirement planning decisions that are w- pretty much one time decision making, right?
[00:44:16] OG: So Social Security choices in terms of timing and some planning scenarios around that. Talk a little bit about Medicare, talk a little bit about, uh, retirement planning distributions and, uh, maybe a little bit of long-term care insurance. Some of these kind of late mid 50, early 50 type decision, and if you, if you’re thinking, “Well, I’m 38, what the heck do I gotta learn about this stuff?”
[00:44:37] OG: It’s just things to think about as you’re building out your retirement plan. Mm-hmm. So, so that’s kind of the tentative schedule anyway. I don’t want to say it’s 100% sure, but, but we’re pretty, pretty confident that that’s what we’re gonna
[00:44:47] Anna: do. Nothing, nothing’s 100% sure.
[00:44:48] OG: Nothing is 100%, except your ability to answer these questions.
[00:44:52] OG: So here we go. First one is, uh, back to season one about emergency funds. I did the math, so this is season one, episode three- Mm-hmm … if you wanna recall that. I did the math on my cash reserve, my emergency funding, and it came up with that I needed nine months. That seems like a boatload of cash to just be sitting in a bank not doing anything.
[00:45:13] OG: Do I really need all this?
[00:45:15] Anna: Absolutely. You could get up to … So the whole framework is based off of anywhere from three to 11 months of expenses, monthly expenses- Right … that then you’re gonna multiply by that number. If you are getting up to nine, 10, 11, it’s just because you probably have some factors or, in your life that need this type of support, and to make sure that if you get into a situation where you lose your job, you have high fixed expenses, you might have a lot of debt involved that you have to make payments on, that you can support yourself during that time.
[00:45:52] Anna: So absolutely. Like yeah, it’s a bummer it’s not gonna be sitting in, in your investment account, in your brokerage, your 401, whatever it is, but that’s the price you pay so that you have that reassurance that if something were to happen, you would be okay- Yeah … to support yourself.
[00:46:06] OG: Yeah, it’s really around the decisions around, or the factors, like you said, around the risk that you have: maybe single income, maybe high fixed expenses, you already mentioned that.
[00:46:14] OG: Variable compensation. Mm-hmm. You know, if you’re using up a lot of your bonus income or RSU income to fund your lifestyle, that’s gonna drive a higher number. And the interesting thing about this, people think it’s a waste to have this money in cash, but the reality is, is it actually is what allows you To have the money invested.
[00:46:33] OG: Because if you didn’t have a bunch of cash, you’d have to have different types of investing, lower conservative investing type of accounts to offset the fact that you might actually need this money or you have this big risk of having to draw. Because when are you gonna lose your job? When the economy is doing really well or when the economy is doing really poorly?
[00:46:49] OG: When are you gonna have a reduction in commission income? When the economy’s doing really well or when
[00:46:57] OG: it’s doing poorly? Mm-hmm. When is, when is your RSU value’s gonna be crappy? When the… You know. And so it’s like all of these things, if they’re gonna hit, they’re gonna hit when things aren’t going well anyway, you know? And so you wanna have this protection. The other thing is that it allows … Having a big cash reserve allows other things.
[00:47:13] OG: You can have higher deductibles on your insurance, car insurance, homeowners insurance, that sort of thing. Um, and sometimes if you have debt, I’ll tell you f- for us, for example, we’re in the middle of a refinance thing of a line of credit that we have, and because we have a cash reserve, we’re actually getting a better rate because the bank says, “Oh, you have this high relationship with us.”
[00:47:32] OG: Now real quick, this doesn’t mean this money has to be sitting in cash, like literally in a shoebox or in your checking account. High yield savings, treasuries- Money
[00:47:42] opener: market …
[00:47:43] OG: money market fund. You know, you can be getting three, four-ish percent interest or dividends on this. Not market rates. Not market returns I should say, but at least a little something, you know.
[00:47:56] OG: Mm-hmm. So if it’s sitting in your checking account, I agree. Okay. Let’s talk about question number two. The question really centers around the tax control triangle. So we, we talked about having money in different buckets and, and it has different tax treatment going in, ta- different tax treatment going out.
[00:48:13] OG: And the question says, “Looking at my 401, all I’ve done is pretax contributions. I got my employer match. 90% of my portfolio is, is on that side of the bucket. I’m 54 years old. Is it too late?” Is it even worth trying to do anything here at 54? What do you think about that?
[00:48:30] Anna: It’s never too late. Never say never.
[00:48:33] OG: It’s never too late.
[00:48:34] Anna: There’s been a conversation I’ve had with a lot of clients this week about Roth conversions and how if we look at the tax triangle today, maybe it doesn’t look perfect but we have time before we start getting into RMD time period which is a long time horizon. We have time before we get into Medicare premiums IRMAA coming and being involved in the planning picture.
[00:48:59] Anna: And so we have… I- it doesn’t have to just be that your savings right now is directed into Roth. It could be that the plan is “Hey, I’m at the highest tax bracket right now. I’m gonna do some pre-tax contributions, and then once I retire income drops down I’m in a different tax bracket.” That’s when I’m going to prioritize Roth conversions and kind of try to redirect the um, the pie chart of brokerage – Yeah
[00:49:26] Anna: pre-tax and after-tax money.
[00:49:29] OG: And there are some other decisions here too if you’re starting h- uh, this year or certainly next year If you’re a highly compensated employee over 150K this year thanks. Over 150k and you’re doing catch up contributions So over 150 and you make … A- and you are over 50 and you’re doing that extra ketchup amount, that all has got to be Roth this year.
[00:49:50] OG: So you know, it’s not if you’ve got 90% of your net worth than f- pretax you’re not gonna making a lot impact there b- but there’s some. And then secondly from a planning standpoint this where some of these other decisions come into play around charitable contributions Kind of timing of those shareable contributions Maybe you hold off on it for a couple years while your incomes really high wait for it to be low income year bunch of bun- a bunch a bunch oh boy Of charitable contributions drive that income really low You can do Roth conversions like big chunks of Roth conversion $100-$200 thousand dollars of conversions at that time There’s a lot of planning decisions that go into this But also want to say this when it comes to the Pre-tax versus Brokers versus Roth side I’ve never met anybody that’s got a mill-…
[00:50:37] OG: You know, $3 million or $5 million or $30 million in their IRA that goes, “Yeah, r- I’m really mad I got 30 million in my IRA. I gotta pay taxes on all that.” “I
[00:50:46] Anna: messed up.”
[00:50:47] OG: You know? It’s like, okay, you know, you still got all this money, and right, if we could have gone back in time maybe you might have built it a little differently.
[00:50:56] OG: But if you’ve been saving and you’ve bega- been contributing and the money’s invested appropriately, you’ve had a good run, you know? And that’s 90% of it, right? Like, 90% of your solution is investing money, not touching it, having a good asset allocation. The other 10% are planning, which does matter, but the other 10% is, you know, did I get the timing right?
[00:51:18] OG: Does… Is the tax bill exactly right? All that sort of stuff. So don’t beat yourself up too badly.
[00:51:22] Anna: Yeah.
[00:51:23] OG: And there’s always some planning opportunities in the future. Okay, uh, third question. This one’s kind of interesting about insurance coverage. So this is from number two, season two, episode two, calculating disability coverage.
[00:51:36] OG: So this is if you get sick or hurt at work, or get sick or hurt and can’t work, I should say. Somebody writes in, uh, w-“We only have disability through work. 60%, that’s good enough, right? I mean, if I’m saving some money and I get 60% of my income from group coverage, I’m good, yes?”
[00:51:53] Anna: Yes. I am glad that you at least have a- Period.
[00:51:56] Anna: Okay. Yes. Yes . period. Move to the next question. You’re fine.
[00:51:59] OG: Next question.
[00:52:00] Anna: I think that having 60%, if you get that offer through your employer, that’s awesome. There’s two things I would look at before considering anything else. Number one, is your benefit gonna come out tax free? That number, it being 60% of your income changes if we can then make that benefit tax free.
[00:52:20] Anna: It’s not actually gonna change when you do your open enrollment, but it’s gonna change with we do an actual calculation. You wanna make sure that if your employer’s p- paying the premiums on your disability policy, that you are paying the taxes. It’s called imputed income. So you want to make sure that that’s listed on your pay stub.
[00:52:38] Anna: It might be like $2, it might be 100 bucks, that you’re paying the taxes on the premiums. This is gonna ensure that the benefit comes out tax free, so then it’s actually covering a little bit more than 60% of your income.
[00:52:50] OG: Yeah, and not all employers allow this sort of- Yes … you know.
[00:52:53] Anna: And some of them automatically do it too.
[00:52:55] Anna: Yeah. So you’ll have to check that out when you do open enrollment. The other thing I would look into is does your employer allow you to increase your disability policy, but you have to pay for it? This typically is going to be less expensive than going out and getting a private policy. They won’t probably let you do more than 10, 20% on top of a 60% policy.
[00:53:18] Anna: Adding that in, it’s gonna be worth it if you ever are in a disability situation and you are collecting the benefit. So highly recommend trying to max out as much as you can disability wise, and going through your employer first for that is definitely m- gonna be more cost effective than trying to find a private policy to cover you.
[00:53:41] OG: Yeah, largely because all of the, well, you know, you’re grouping all of the people together- Mm-hmm … and so you’re sharing that risk pool, so to speak. I agree with the employer side. Try to get as much as you can from your employer. And I think the other thing, this is kind of how I’ve always thought about this with disability coverage.
[00:53:56] OG: If you’re in a two-income household and one person gets sick or hurt, there’s probably some fungibility in expenses and sort of thing that you’re still gonna put food on the table, right? Mm-hmm. You’re probably not gonna have to worry about a roof over your head. Now, maybe you gotta sell the house or maybe you gotta make some upgrades or, you know, whatever, and that’s some stress.
[00:54:17] OG: But the thing that doesn’t happen with disability insurance when you’re at 60% coverage is you lose the ability to save. Yeah, so if you think about your income as 100% and maybe you pay 20% in taxes, you know, and if you’re living the dream, you’re saving 20%, and you’re living on the other 60, right? Well, if you’re getting 60, you’re living okay.
[00:54:37] opener: Mm-hmm.
[00:54:37] OG: You know, you’re gonna be about right. Oh, okay. But disability insurance ends And what, what group coverage doesn’t provide necessarily unless you do some extra stuff like you said is that delta between what you’re living on and what you are currently saving. So you can’t put money in your 401when you’re on disability.
[00:54:55] OG: You can’t get an employer match when you’re on disability. You’re probably not getting RSUs and stuff when you’re on disability. Not to mention maybe your disability only covers your base salary- Mm-hmm …not benefits and, you know, all that other short stuff. But I would look at this and say, “I’m insuring my income, but I also need to maybe consider ensuring my savings rate,” and that’s that extra 10, 15, 20% that you’re talking about worth exploring.
[00:55:17] OG: Again, I think, you know, from a planning standpoint, all of these things are decisions that kind of all fold together as you’re building out your, uh, building out your financial plan. Okay, maybe one more. We’ll go kinda quick . Go quick with this one. Yeah, right. Is the 4% distribution rate, the 4% rule, is that still realistic or is this outdated?
[00:55:37] OG: I don’t know if the person’s referencing some new research or if they’re , or if they’re referencing the market’s up of 20% a year. Like why do I have to still take four? I’m not sure. I, I, I’ll put you on the spot and ask you if you can do it in 30 seconds. I don’t know that 30 seconds is a, a great timeframe.
[00:55:53] OG: Here’s what I would do, and what we were talking about here in this season and that calculation was how to calculate your retirement income or what your portfolio need is to draw from for the rest of your life, and there’s some research out there t- right now that suggests maybe that number can be as high as 5% or 5.3 But I think a lot of this is gonna come down to when are you using it?
[00:56:16] OG: And how much margin of safety do you want? Look, at the end of the day some of this is luck and you can’t predict luck. You know, if you’re the person that retired January 1st of 2007, you’re like, “I got $1 million bucks, I’m gonna live on 40 grand a year, 4% rule, life is good. I’m gonna go on a cruise. I’m not gonna look at any news or anything until January 1st of 2008.”
[00:56:37] OG: And you come back a year later and you’re like, “So, how is everything going? My first year retirement was awesome. How am I doing?” Well your portfolio went from $1 million bucks down to 960 ’cause you took 40 grand out to live on. And then it went from 960 to about 650K , you know, by, by January 1st. The interesting thing is, is if you still took out that 40 grand the next year, by the time 20- 2012, 2013 rolled around, you were back to about a million.
[00:57:04] OG: Like you came back. The risk that you run by taking too much out is if you get unlucky and you take money out and the market goes down, and you take money out and the market goes down there’s not enough juice left to recover it. And so what the 4% rule or 5% rule or whatever you wanna call it is based on is: What’s the highest probability that in the worst case scenarios you can still draw money from?
[00:57:28] OG: I don’t think, Anna, this is true for you too, we don’t like to do one-and-done retirement income plans. They’re very dynamic based on what’s really going on in your life, what’s really going on in the world. And giving you a range of distribution possibilities, I think allows for the flexibility that most people want.
[00:57:46] OG: Very few people do I know and do we talk to that say, “I can’t wait to save all this money and not spend any of it, and like be able to donate tens of millions of dollars to my kids,” you know, “when I’m 100 years old.” You wanna balance that out, right? You wanna maybe leave something for the future. You also wanna have a little fun today.
[00:58:04] OG: There’s, there’s a balancing act. And I think part of our job is to balance out what’s really going on. And when you have a sequence of events like 2020 through 2026 like we’re in right now where the market’s done really well, the economy is strong, and portfolios are growing faster than, than we project or have projected, it’s like great let…
[00:58:26] OG: This is the time to have a little extra. Mm-hmm. Just like in 2007, 2008 maybe it’s the time to tighten the belt just a little bit. So 4%’s a great number to use for a finger in the wind guesstimation but um, probably not great if you’re gonna base your entire retirement journey on I think maybe we went a little too long.
[00:58:48] OG: But you know what is Joe gonna do to me? You know he’s got to see me three times a week so… He might fire you Anna but he’s not going to fire me. Next week we’ve got social security on the agenda; timing and uh kind of thinking through What are some risks about early retirement? This is really the angle that I want to look at this in Is Early Retirement Social Security decisions So if you retire at 50 or 52 Or 55 mm-hmm What is that going to do To your social security benefit And how to think Through that Yeah
[00:59:13] Anna: This is a decision I’m currently In the middle Of right now
[00:59:15] OG: You’re Going to Retire At 50 Mm-hmm And Uh It’s Gonna Affect
[00:59:18] Anna: Your Oh no We’re Way earlier
[00:59:20] OG: Okay Well I guess That On That Note Uh We have other things To talk About So back to you guys In The studio
[00:59:27] bumper: Hey Nick Loper here from the side hustle show when I’m not helping people earn money outside of their day job I’m stacking benjamins
[00:59:35] Joe: Nice job season three OG good work
[00:59:38] OG: The star of the show is stackers for sure
[00:59:40] Joe: Well let’s keep Stackers the Star of the Show because I’ve Got A Couple Things On The Back Porch Number One Was Stacker Julie Sent Me A note A Lot Of Our Stackers Like To Travel A lot Of our stackers also roll Their Eyes At The Latte Factor Og They’re like Damn it i’M Gonna Have My latte it’s gona Be okay well If You Are A Starbucks stacker and You Are somebody Who Also Travels uh julie sent Me A TikTok by Wes Keeley Which I Think Is Goanna be Really Helpful og listen to wes check this out
[01:00:16] bit: All right.
[01:00:17] bit: Here’s another quick hack . If you are a Starbucks person like I am and you use the app when you’re traveling and you have stars, save your stars for when you’re traveling because in airports Starbucks can be like three, four, five, $10 more. But 200 stars stills free drink. So save ’em, use them.
[01:00:40] Joe: That’s a good tip. See ya. That’s a great tip if you like Starbucks. Yeah, that one’s pretty good. I’m married to somebody who likes Starbucks. But hey, uh, you been to an airport and tried to order a Starbucks? It is… A Starbucks is already expensive. It’s so much more expensive at the airport, but 200 stars is 200 stars no matter where you get it, so you get more of a value if you save your stars for the airport.
[01:00:58] OG: If they use it, if they accept them there.
[01:01:00] Joe: If they accept it, yeah. Great stuff. Thanks for that, Julie. If you’ve got something that you think we should be passing on send that to us, joe@stackingbenjamins.com. Love to have you contribute to the show like many of you did for OG and Anna’s segment today. If you’d like to ask questions, it’s stackingbenjamins.com/yelldownstairs, is a great way to be a part of a future show that we’re building.
[01:01:24] Joe: All right. That’s gonna do it for today. Big thanks to you for hanging out with us today. Go back, look at your risk tolerance, look at how you determine your risk tolerance, go look up your standard deviation on your funds. Ask yourself, “Can I handle this?” Ask yourself, “How much money do I need to save for my goals?”
[01:01:40] Joe: I think all of that is very important as you’re making your way toward financial security. We’re gonna help you there on Wednesday. Wednesday Todd Havens joins us, and Todd wrote a phenomenal book about mindset. This is kind of the book that goes along with JL Collins’ A Simple Path to Wealth. It is kind of a one-two punch between Todd and JL.
[01:02:02] Joe: And man, when I read it, I’m like, “I gotta talk to Todd about some of the themes that he has.” Todd found out that he had a cancer diagnosis- Mm … and it changed his viewpoint about the entire world. Luckily he’s okay, but we’ll let him tell that story on Wednesday. You’re gonna wanna hear it. All right, Doug.
[01:02:19] Joe: Take it from here, man. What should we have learned on today’s show?
[01:02:22] Doug: Well Joe first take some advice from Joe and OG. Don’t begin your risk tolerance questions with how much risk makes me nervous. Instead start with, how much risk do I need to reach my goals? And then ask, can I handle it? That will ensure you sleep at night because your portfolio isn’t making you nervous, and your ship is still headed in the right direction.
[01:02:46] Doug: Second, those Starbuck points, yeah, save them for the airport. Cha-ching. But the big lesson You might wanna sit down for this one. It’s not a person named AI, it’s artificial intelligence
[01:03:02] AI voice: But the big lesson? Don’t let Joe and OG know that there are a whole range of AI voices who can help make your podcast better.
[01:03:10] AI voice: Wow, this is really cool. This program reads everything exactly as written and never ask for overtime pay. Brilliant.
[01:03:19] Doug: Wait, the robots are here right now. Okay. All right. Okay. Everybody calm down. I’m going to wash the tailpipe on the Harley. Chill. Just make that AI voice go away. It’s frightening This show is the property of SP Podcast LLC copyright 2026 and is created by Joe Saul-Sehy.
[01:03:41] Doug: You’ll find out about our awesome team at stackingbenjamins.com along with the show notes and how you can find us on YouTube and all the usual social media spots. Come say hello. And oh yeah before I go not only should you not take advice from these nerds don’t take advice from people you don’t know this show if for entertainment purposes only before making any financial decisions speak with a real financial advisor.
[01:04:07] Doug: I’m Joe’s mom’s neighbor, Doug and we’ll see you next time back here at The Stacking Benjamins Show
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