Transcription
money to work. That's right, Mr. Finchley. You can own a share of American business. There are over 1,200 companies listed on the New York Stock Exchange. Companies which employ more than 11 million people, produce half of all the goods made in America.
Welcome to Ask the Compound, the show where you ask and we answer. I am Ben Carlson. Let's say you have a traditional portfolio, stocks and bonds, call it 70/30, 75/25, whatever, but you also own a rental property. Is that rental property more like stocks? Is it more like bonds? Can you take more risk in your portfolio because you have rental income coming in or less because it's an illiquid asset? We'll answer these questions about investing in real estate and much more on the show today. Let's do it.
All right, welcome to Ask the Compound. Ask the compound show@gmail.com. That is the email. Today's show, we'll be discussing the following questions straight from our compound audience. Does $1 million make you rich still? How should your savings vehicles change when you have kids? When should a small business pay off an SBA loan? How does real estate fit into your asset allocation? Should you sell stocks to buy a house or condo? Duncan will be also taking live from the chat from everyone. I'm sure Dave is here. Cliff is here. Is Duncan mom's in the house? Is Pam here? Uh, I don't see her actually. I don't think so.
If you're in the live chat on YouTube, if you're watching live on Twitter, send us your questions or send send us thoughts on how we're answering the questions. We'll discuss them live on the show. Um, early happy July 4th to everyone.
I'm wearing my July 4th best.
I am too. I have a natural light shirt from Tropical Bros on. Uh, you can only wear it on the Fourth of July weekend, I think. All right, Dave, where is Ben today? Ben's at the lake. I'm going on the boat right after this. Okay, this is this is it for me. Then I'm out. It's 90°. It's time to be on the water.
Some tri-tune time.
Definitely Lake House Ben. All right, today's show is sponsored by Public. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions, buying the dip, manually sleeping idle cash, putting on a hedge on public, you can create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English, like if the VIX hits 25, buy a put option on the S&P 500. You approve the workflow and your agent handles the rest, monitoring the market, watching your for your conditions and executing your strategies exactly as defined. Public is the world's first agent brokerage and investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.comc to get started. That's public.comc. Paid for by public investing. Full disclosure is in the podcast description.
All right, again a big welcome to everyone in the live chat. We've got a great show today. Tons of good questions. We're never going to run out of questions because we got so many that came in for the book. Sorry for everyone who didn't get didn't get a copy. We still appreciate the questions.
Everyone wants a book. But uh, yeah, now you can just go buy one. Support Ben.
$15. That's like the cost of a beer in New York.
Everyone can handle that.
Yeah. Not even not even really a joke. Yeah, that's like beer on at happy hour in New York.
All right, let's do a question.
Okay, up first and I have no idea if I'm saying this right because I've only read it, but uh I came across Capgemini's 2026 World Wealth Report and was surprised to see that there are 25.3 million people globally with at least $1 million in investable assets. I remembered reading one of your blog posts called House Millionaires from late last year where you stated that one in five Americans were millionaires. Capgemini is essentially saying that there are 8.73 million people in the US with $1 million in investable assets. Does $1 million in investable assets still make you rich in the US? How much do you think you need to be rich?
All right, I I this is a new one to me. This Cap Gemini, whatever it is, I've never seen it before. CNBC had this article on it and that that whoever sent this question and they put the article here. Uh, here's some numbers from the report. The population of global millionaires surged 7.9% to 25.3 million in 2025. Ultra net worth, that's $30 million or more. This group's this group makes up 1% of the millionaire population but 35% of millionaire wealth. So there's inequality even among rich people. Right? 730,000 new millionaires in 2025 in the US and that brings the total to 8.7 million according to the report. Now this it's they make this point in the question but it's worth saying this is liquid net worth. This is like what you can tap. This is not home equity or businesses, you know, values of that.
Okay, that's what I was going to ask you. Okay.
Yeah. So there are other ways.
So if you take a HELOC, does that become investable?
Well, this is net worth. So it's net of your debt.
Okay. I got you.
Right. So now the the one so I did have this house rich millionaires. I looked it up. I wrote this at the end of 2025 and I used some data from Bloomberg to talk about this. U, so they say that there are now more than 24 million millionaire households in the United States, which is around one in five households and one-third of those people have become a millionaire in the past 8 years. But this is this is including home equity. So Daniel put this is a chart that they had, do a chart on here. They talked about how these people aren't very liquid because a house makes up most of it. So people who have 1 to 2 million, that's 12 million households. A third of or 40% of that is in housing. Like so these people have got rich. Again, this is net of the debt. So this is pretty good because they've had it's so much equity. But their Bloomberg's point was most of these millionaires are not liquid, which is fine. Chart off that. That's that's okay. And they're also saying a lot of this is in retirement assets that you can't touch. Guess what? You're still rich. You have that that's a financial asset for. It doesn't mean you're not rich. Um,
It is interesting.
So, do you think that it counts as being rich if you have a massive 401k, but like you're let's say that you you you know had a or an IRA. Let's say you invested in some crazy stocks that have gone up 100x?
But like you can't really tap it and your job is just pretty average. I mean, are you rich?
Yes, Duncan. Being a millionaire is not spending a million dollars. It's having a million dollars right now. $1 million in liquid net worth. I get the I get the argument. I live in San Francisco. It's super expensive here.
I'm just saying it doesn't help you make that car payment or anything, right? Like if it's in your in your IRA?
But maybe it's less money you have to save, so you can now spend more on that car payment, right? Um, so $1 million in liquid net worth, meaning no home equity, puts you basically in the top 1.5% globally. Okay. So on a global basis, yes, if you have a million dollars, you're rich. It puts you in the 88th percentile of Americans. The top to be in the top 10 percent is more like $1.9 million liquid. Again, no home equity. So, obviously the $1 million doesn't make you rich. It depends. You like, do you live in Manhattan? Do you live in San Francisco? Or do you live in Topeka or De Moines, right? Uh, I think your age probably matters a lot. Do you have a million dollars in your 30s or a million dollars in your 60s? A million dollars is worth way more to someone in their 30s than someone in their 60s because the time value of money. Uh, the burn rate obviously is a big thing. Like what kind of lifestyle are are we accounting for? Um, the subjective part is of course what does a rich life look like to you? Um, it is true that a million dollars is not what it used to be, right? Um, I love to do a tour of the '90s. I for some reason I feel like the first half of the '90s were no one sells out, right? That was the that was just the the music, the grunge style, right? Pearl Jam and Nirvana. I was like, "No, if you sell out, you're you cannot do that." By the end of the '90s, everyone was selling out. And for some reason, a million dollars became a big thing. Being a millionaire was obviously it's been a thing for a while, but it became huge in the '90s. So, let's look at some of my pop culture references for Millionaire in the '90s. Indecent Proposal. Remember this one? I rewatched it recently.
I I have never seen this one actually.
So, Robert Redford Robert Redford offers Woody Harrelson and Demi Moore a million dollars. Demi Moore is married to Woody Harrelson. He says, "I'll give you a million dollars to to let me sleep with your wife." Okay. A million dollars. Uh, next one. Blank Check. I watched this one with my kids recently. The kid gets a gets a blank check.
That one's good.
Uh, this movie would have some problems today because the kid's like 10 years old and the FBI agent who's a fully grown woman like has a crush on him and uh it's it's it's kind of it'd be problematic, but he writes a check for a million dollars and cuz a guy runs over his bike and he buys like a castle and all this stuff. He buys water slides and for a million dollars. Okay, whenever that movie came out, Dr. Evil said he was going to ask for a million dollars. Remember that was the meme? $1 million if he otherwise he's going to blow up the world. And they laughed at him.
Who Wants to Be a Millionaire? Remember this one? I watched it live when John Carpenter won the first million dollars and he called his dad. He said, "I want to phone a friend." And he called his dad and he said, "Dad, I just won a million dollars." That was pretty cool. So, a million dollar for some reason in the '90s became a big thing. Um,
You know how the phone a friend always answered? I only recently read somewhere that they were there in the studio. The friend had to be there in the studio. That's how they knew that they would be able to answer.
Ah, that makes that makes a lot of sense. Yeah.
I always wonder that.
Yeah, I that show was huge. Regis, remember? Um, my favorite one is Office Space. What would you do if you had a million dollars, right? Lawrence says, "I do two chicks at the same time." Um, and then Peter says, "What I would do is nothing." And then Lawrence says, "Well, take a look at my cousin. He's broke. Doesn't do [ __ ]. You don't need a million dollars to do nothing."
Yeah. Yeah.
So, a million dollars was a huge thing. And then of course if you're a financial advisor, you have this book, The Millionaire Next Door, right? So I wrote about this a little bit in my book. This came out in 1996. A million dollars in 1996. How much would you have to have today, Duncan? To get be a millionaire for the same level of wealth accounting for inflation.
Uh, 2.1 million.
Yeah. So a million dollars in Yeah. Hopefully you read that in my book, right? It was
Yeah, I did. I've read that in your book.
Yeah. So listen, I still think being in the two comma club means something. You have a lot of money if you're a millionaire. It makes you one of the richest people in the world, but there there are a lot more rich people now. And I think having a million dollars might not feel very rich anymore because there are people with a lot more money than that. So, I understand why some people say they don't feel rich even though it's in their 401k and their home equity and stuff, but if you have a million dollars, yeah, you're still you're you're up there still.
You just made me think of the three comma club from Silicon Valley.
Well, yeah, that was that's where the joke came from. Come on, Duncan. Yeah, keep up.
I like
too too comical, right?
Yeah. All right. So, yeah. Is a million dollars is does it make you as wealthy as it would have in the past? No, of course not. Because inflation eats away at that value. But that's still not bad. All right. Next.
Well, yeah. This the last thing on this I'll say is there's a lot of memes going around of when I was a kid, a million dollar house was a mansion. And you know, today a million dollar house in a lot of America is just a pretty average.
Yeah, for some reason.
Yeah, I even in Yeah, I I I I feel that for sure.
Yep.
All right, next question.
Okay, up next we got one from Maria. My husband and I are expecting our first child this September and we'll be shifting to a single income for the next 1 to 3 years. We've always maxed out every tax advantage account available to us, but now we'll need to prioritize. What would your financial order of operations be between a traditional 401k, additional 401k, contributions through mega backdoor Roth conversions, an HSA, a 529, a 530A, and an IRA, uh, which we'll become eligible to contribute to again with only one income between us? We're fortunate to have healthy savings, including 12 months of expenses plus a 20% down payment for a near-term home purchase. We're particularly interested in 53A versus 529 versus mega backdoor Roth. We're leaning towards the mega backdoor Roth because contributions can be pulled whenever and there's some estate planning benefits as well. Are we off base here?
All right, first of all, I'm Maria and your husband. Congratulations on child number one coming in. Uh, I'm impressed with how thoroughly they've thought about this. So I think you're probably going to the other stuff together. Let's bring on uh Mr. backdoor Roth himself, the mega backdoor Roth.
Maybe I should retitle HSA guy, you know, for 250. I don't know. Uh, that's where I wanted to start with this one. But Ben, what
I pick one, you know.
Yeah. Well, exactly. Love them all like your children.
Okay. So, I mean, they they list it. So, the 530A, that's the Trump account now, right?
That's correct. Yep. Yep. 530 cap A. You got it.
That's one I wasn't.
Duncan's got to add that to his cheat sheet.
Yeah, exactly. Um, so first of all, before we get into the hierarchy, Bill, tell us the benefits of this mega backdoor Roth, which I'm I've got to be honest, it sounds like a really bad adult film, but mega backdoor Roth, what is it? Why do people do it?
Yes, it is not as sexy as it might sound. Uh, but Ben, ultimately what you're doing is you're filling up the uh 415 Charlie contribution limit on a retirement plan. You can fund a a Roth 401k, a retirement plan at work up to $72,000 this year. The thing is only 23, the first 245 comes in elective contributions and that's your typical Roth. And then you can bolt on in some retirement plans with Fidelity and other vendors, an after-tax convert that to Roth contribution to get all the way to that $72,000 limit. It's a really, really special thing and unfortunately not everybody has access to it. Um, but it's a very cool way to turbocharge retirement savings.
Okay. So, but the thing is obviously by doing the back door, you're putting it in traditional, then you're converting it and paying the taxes.
Yeah. And Yeah. More or less. Yes. Is that you don't get an upfront tax deduction and then the the catch with that is the contributions have to go in after tax and then somebody has to convert that to Roth at some point along the way. Uh, different companies handle that differently.
All right. So, obviously again, Maria and her husband really have stuff down. They've been maxing stuff out. They say, "Hey, three years or so with kids, it's going to be harder. I don't know if someone's not working or they're just going to have more money going to the kid. Uh, oh. Single income, of course. Yeah, one of them not working. So,
Yeah,
here's my hierarchy. Tell me what you think.
I would always say 401k, get the match, of course.
Right. Then maybe move to your Roth. And I think she said, "Yeah, they're going to become Roth eligible by going down to that single income." Right? So, I'd say Roth next. Then head back to the 401k till you max it out. Then we're talking brokerage, then 529, then HSA, then Trump. Where do we disagree?
Yeah. No, I think you're you're right about there, Ben. Uh, and I like Ben, also how you split the uh the the contribution, right? You did it based on the match. I would say that's the difference between a 402G and a 415C contribution. So, Dan, can we chart on because I put a I put a chart together. Ben, I rank these in a power ranking going into our 250th birthday here as a country on tax advantage accounts. And I Ben, I would put the HSA at the top.
HSA first.
HSA top. I know I need to rebrand and do neck tattoo for a health savings account. But yeah, Ben, the HSA is the only account that you can put dollars in, take a tax deduction, and you can get them out tax-free. That is unique in the tax code. It doesn't it doesn't happen with anything else. So if you happen to have an access to a high health health savings plan account via a high deductible health care plan, where acronym city today, uh, an HSA to me Ben would be number one.
And I guess also you may be having some more medical bills with a child.
Yes, that's certainly a case. You will have medical bills in your life. I guarantee that.
Not not to derail this uh but with HSA I'm always confused. You have to keep a certain amount of cash in there but you can invest the rest. What's the deal with that? I don't
plan rules dictate these things. I know Duncan, our Rholtz wealth uh HSA plan. I guess we're revealing ourselves as HSA fellow travelers here on the show. Um, yes, I have to hold $2,000 of cash and I totally agree. It drives me crazy because I don't spend on I don't plan on spending that. Like I actually want that to compound in a tax-free manner throughout the years, but yeah, Duncan, that's that's an individual plan.
That's just to cover that's to cover medical expenses so it's not all invested.
Yeah, exactly. So you don't have to like pull your money out for your health savings account. Um, but can we chart on? So once your HSA is funded, can we go back? I would then Ben exactly I'd hit the 402G limit on on the 401k plan and then I would flow dollars into a Roth IRA. I love the flexibility there. This is where the flexibility becomes really important. Right, Ben? You don't get a tax deduction upfront funding a Roth IRA, but you get this flexibility in distributions and then ultimately tax-free growth. After that, I would fund a 529 to take advantage of the state tax benefit. I'm in New York. I get a $10,000 deduction I can take for 529 contributions, which is really special. Louisiana, I think, has the coolest state tax benefits. They offer a 2% credit plus a deduction, which is really cool. Then I would fund the 415C Roth, mega Roth back dooror, and then I would look at a 530 cap account on the Trump side and chart off. That's more or less the order of operations. Ben, I think you and I are totally aligned. The 530A is the least attractive of the bunch.
Okay. In the in the comments, someone did say that the custodians usually suck or are cumbersome for HSAs. Is that a problem where you could be like your options are limited? And
that that's always been my thing with HSA. Isn't it kind of a pain in the butt?
It's a pain in the butt.
Yeah. Like my wife's was charging some pretty big fees that I saw coming out every month, you know? So, yeah, it's not it's not perfect.
Yeah, I totally agree. However, you don't have to stay with the same HSA for the next 30 years, right? You you basically that's the vehicle you need to use through your employer to get dollars into those plans and then once you're done with the plan or you can roll it over. Our HSA again I'm company man allows us to transfer funds to Schwab where you can have a whole suite of ETFs that you can go and invest in that are low cost and index based. So I would say generally that's something to look out for. It's a it's a pitfall but not always.
Leveraged ETFs.
I don't know if you can do it but why not? Hey, it's 250 years of freedom. Duncan, you be you. Let that freak flag fly.
That's what George Washington asked for.
It's I mean
representation and then TK no taxation without HSA representation.
He would have been into it.
In the chat, Osprey says, I think they're responding to what I was asking you, Ben. The idea that you can't access 401k or IRA penalty-free before age 59 and a half is one of the greatest personal finance myths. What do they mean? Well, Bill, they might be talking about the rule of 55 or paying the penalties or taking the Roth contributions, I guess. Is that part of it?
Yeah. Typically, Duncan, the plan will not allow you to take funds out for any reason. However, hardship distributions is a new penalty exception. New this year, it's a limited amount. It's $1,000. But yeah, first-time home buyer, there's a slew of play of ways you can go to basically access funds even on a pre-tax basis. Yeah. You have to pay the tax.
Right. You can borrow you can borrow from your 401k for a house.
That's right. And a loan, too. Yeah, there's there's a lot of neat things. And again, that's why I the 401k, the Roth IRA, these things are are are awesome. And and like the goal should be to just get dollars in there, right? And put them to work.
Guess what? Maria and her husband have matched have maxed out all these tax deferrals. Like they're rich, right? Or they're going to be rich.
I would say. So, too. Yeah. In terms of compounding, right? Because the tax advantage is is is difficult to quantify, but I would argue very, very underrated.
All right. Let's see another question. Kind of a new one here. Small business stuff.
Okay. Yeah. Up next, we got one from Spencer. I own my own business and I keep retained earnings in my business at about two months of my overhead expenses. I took out an SBA loan to expand my operations in 2024. The loan was originally for $225,000 on a 10-year term with an 8.24% rate. The monthly payment is manageable, but that 8.24% interest rate is killing me. The amortization table for the loan shows interest costs totaling $106,000 if all I paid was the minimum payment for the life of the term. This is the highest our income has ever been. I already max out my Roth K and my backdoor Roth contribution at the start of every year. Part two. I'm really torn between aggressively paying down this loan on the one hand and on the other hand letting the regular payments take care of it while enjoying this not to brag income after working hard for 17 years to get here. For example, my wife would love to renovate our bedroom and bath. We've also talked about a vacation to Turks and Caicos. Is that
Turks and cows? I think it's cows.
Turks and Caicos. What are you talking about, Bill? In the next year. Having heard your discuss having heard you discuss the merits of not paying down a 2.5% mortgage early extensively on the show, what are your thoughts on how to address paying down a loan with a higher rate like this? Do I just order myself a Miami Vice and enjoy where I am right now?
All right, so this is I guess the hard part about owning a small business because your business decisions can bleed into your personal finance decisions, right? And it's a really tough balancing act because it probably feels like it's one and the same. Uh, 8.2% is obviously a pretty high hurdle rate. Um, I think this is one of the reasons that you you make plans in advance. Like what was your plan when you took the loan out? Were you planning on paying it off over the life of the loan? Uh, will it help your business if you pay it off, not just your personal life? Um, how badly are you in need of vacation to Turks and Caicos? Um, Bill, how do you think about because you've been a small business owner, too. Like, how do you think about these business decisions bleeding into real life? And it's like, gosh, I could take all the money and reinvest it into the business and not spend anything myself. Like, I I it's it's a tough balancing act.
Yeah. My first reaction, Ben, is first principles. I don't look at this as a burden. Like, where else can you go and borrow $225,000 collateralizing it like with your business, right? That's not available to a gentleman on the street more or less. I would agree with your observation the mix of business and personal that can get complicated, but this isn't even an option. Right. If you have a W2 style job. So I think it's pretty good. The other factor I'd point out Ben is is business interest like this presumably uh Spencer took out the loan, you know, $200 grand, took it out in order to expand operations, generate more revenue on the back end. So yeah, there probably is a cost and it's
Yeah, what's the what's the payoff going to be? What's the ROI?
Yeah, exactly. So yeah, he's paying $16,000 this year in interest and okay, that's not great. But ultimately, what are you getting? What are you getting for that, right? And and presumably he's getting some additional gross revenue. Ben, there's a tax advantage to doing this for the business that should be obvious in that if you're able to deduct the the interest that you're paying on on a on a taxable basis, let's say at 30%. His after-tax borrowing rate is closer to 5.6, 5.7%. Right? And that actually brings it below Ben, like what you can borrow from quote unquote the street, right? A 30-year mortgage is in the sixes right now if you think about it. So
inflation is running at four. So that's actually not as bad as it sounds maybe.
Yes, exactly. Because ultimately the principal balance is fixed. You're totally right. And as you pay that loan down amortization table, you do end up paying less and less and less. So therefore, put it all together. I think it's not a bad rate. It's it's ultimately I think pretty fair. I think it's relatively stable for market purpose. And Spencer, it really is a business decision. If a six or 7%, you know, rate of return is not on the drag on the tax drag. If that if that's really eating and chewing you up. And I don't know that necessarily you can guarantee or or really feel super confident you're going to get a six, 7, 8% rate of return for the next eight years right from the market. It really depends. Things feel kind of frothy, a little bit high in valuation purposes to me. But that said, there's no reason to think all or none with this type of
But you're right. Borrowing six figures for a probably risky small business at that rate probably makes sense. And hopefully Spencer's CPA knows that he can deduct that that interest. Exactly. But Spencer, if you are going to consider making make, you know, just making some installment payments, just paying off the loan a little bit early, I do think it would lend itself to doing that more on the earlier side, Ben, right? Because again, amortization, you're paying you're paying the most amount of interest as a percentage of your monthly payment or annual payment right now and you're eight years left in the loan, right? So, if you are going to do it, the compound benefit in compound debt would be to do it sooner rather than later. So my recommendation to Spencer, sit down at the end of the year, you know, look look things over. Take take a look at the books, take a look at your retirement plan up, down, left, right, and you can decide, hey, if I have an extra 5, 10, $20,000 sitting around in the business account, then you can decide to allocate that to debt or to investments. That's what I would recommend.
Or he could sit down in Turks and Caicos and evaluate it.
I really think it's I really think it's smoother than that.
I think so. That's what Barry Rholtz told me. He said he trips and counts every day.
Have you heard Barry Rholtz try to pronounce Michael Morbius's name? Come on, you're taking his advice.
Unlike the three of us, he's been there, so I took his word for it.
I've definitely I've never been there. Okay. Uh, are they in the World Cup?
I think.
No, it's a small Caribbean island. Speaking of which, my my kids are upstairs watching England lose right now. Uh, we're we're actually rooting for the British because we want them to play the Americans in the next game.
Right. Exactly.
That's what I want to see. And the French won American soil uh yesterday for the first time in 250 years. Congratulations to the French.
True.
That's pretty good.
True.
All right.
All right. Up next, we got one from Paul. How do you think of personally managed rental properties and asset allocation? Say I've settled on a 70/30 stock to bond ratio with a million in total. How do I factor in a $300,000 rental property? Is this more like a stock or a bond or is it treated totally separate? Would you change your portfolio allocation to account for the rental? And do they mean the the cost of the place is $300,000? They're not saying you're getting that rental income, right?
No, I I think the the cost is probably $300k. And
it's tough because real estate has a little bit of features of both. Like it's kind of like fixed income because you have regular payments coming in,
but it's kind of like equities because you're building equity and the risks are probably more equity like than bond-like, right? Because it's illiquid. There are ancillary costs involved. You're dealing with people who could be awful tenants. You could have an economic downturn. You could have natural disasters. So, I I do think real estate has both of those characteristics. I would say unique risks, unique asset class, right? Real it's its own thing. It's not it's not either. So if you have that million dollar stock bond 70/30 portfolio and then an extra $300 grand in the rental property, it's probably like 50% in change in stocks, 20% change in bonds, and 20% change in real estate. Real estate is the asset class. It's another asset class. I now the question is um does it mean you can take more or less risk? I don't think it means either of those things. I don't think it allows you to own fewer bonds because you're getting income in because it's not liquid, right, for rebalancing purposes and that kind of thing. And I don't think it necessarily mean you're taking too much risk because you you do have the income coming in. So I I I think it's its own separate thing.
Fair.
Yeah, I'd agree. And Ben, I I think when on my way of thinking, I think you're right. But to me it tilts more towards the equity side of my brain certainly because I would agree with everything you just said and cash flows and commercial real estate do tend to be higher. However, you do get these these relatively severe draw down effects that happen from time to time but in the benefit you get you get inflation adjustments. So can we chart on? I took a Glenn not I took a look at some data and this is from the from the Federal Reserve. I took a look at the median sales price of US houses sold. Now, this is not exactly like the market, right? The problem with real estate, I would argue, is it's all local. And ultimately, if you buy a property in Brooklyn, New York in 1974 and you sell it 30 years later, you're going to get much higher than the market rate of return. But vice versa, if you're in the middle of the rust belt, right, you bought a property there in in southern Detroit and and the market falls apart, right? So, you you can't know these things in advance or idiosyncratic risk. Correct.
Yes. Yes. And and again, the locality of it and I don't think these things necessarily can be predicted in advance. So, but if you take a look at the median price of houses sold. So, these are actual sales. These are not values. This is not an appraisal. This is what would the prices actually sell for. And then I adjusted it for change CPI. You can see that that March of 2007 peak, right, of $389,000 for the median house, declined to $305,000 over the next two years, and then did take that long march higher. I do like looking at data like this because Ben, I think people just have this perception that real estate always goes up. But one of my observations is a lot of that is just it's inflation, right? And how many assets do you hold for 10 and 20 years? And I guess the shocking thing when I was looking at some of this data is that the the median price of houses sold in the US peaked something like 3 years ago. I had no idea on a real basis that inflation has chewed up most of the returns from houses sold in the US over the last three or four years. I do think that we all think, hey, house prices are going up, not realizing that that might not necessarily be true on an inflation adjusted basis, but more so locally. So, it really unfortunately just depends up every time I work.
Well, right,
only where Duncan's trying to buy. Now, taking the other side of that could be that, you know, bonds do not protect you against inflation. In fact, inflation is the biggest risk for bonds. So, you could say actually
owning real estate is a pretty good inflation hedge to kind of offset that fixed income risk. So it's
totally agree, totally agree.
Again, unique risk, unique rewards, right? It's to that's why it's totally different than both of those.
And that's why founding father Alexander Hamilton in '79 created the TIPs, right? Because an inflation-adjusted bond. I mean, you can seek these things in the market, but yes, I would agree that the inflation protection and more so the big thing that you get from real estate, right? You get a place to live and that it's very difficult to quantify the value of that, particularly if you're paying rent or you need to live somewhere, right?
But with this a rental property and Bill, you can speak from from experience here, you've you own owned rental properties before. It's uh there's the headache risk that you don't get in a lot of other asset classes.
It's work. It's basically running a small business, you know, not every day, but certainly you do need to put the time into it or pay somebody to do the work for you.
Right?
Can I can I give you my take as a longtime renter?
Please.
Uh, I think that if you're doing long-term rentals, like having people sign yearly leases, that's more like a bond. And if you're just Airbnbing the place week to week and you're getting more money, but you don't know if it's going to be rented out a month from now or not, that's more like a stock.
I like that. What's interesting, too, in the tax code, those short-term rentals, that's taxable in a Schedule C, meaning it's subject to self-employment tax for the most part if you're providing short-term rental services. And what's interesting about the Airbnb thing is Airbnb host for me guys, I don't know about you, they don't really provide a lot of services, right? I need to take out the garbage. I need to clean up. I need to pick things up. So, but ultimately, yeah, there is a tax advantage to Duncan to taking those longer-term leases as a landlord.
Yeah. Where I live, some of the units are Airbnbed and the nightly rate breaks out to be like double, you know, what I'm what I pay, right? For for a yearly lease.
For obvious reasons, right? It's probably those things are rented probably half the time, I would guess. Funny how math works that way.
Yep.
All right, we got one more about real estate.
Okay, last but not least, we got one from Ted. Is it worth selling your stocks to buy a house or a condo when you know that your positions will do better over time?
All right, I mean, you don't know your positions will do better over time, right? Just like real estate can perform. Stocks can, too. I guess my questions for Ted would be, are you selling your stocks to buy a house or condo outright? Like, you're paying in cash? Uh, are you going to use it for a down payment? Uh, I guess what's the point of investing in the stocks in the first place? I or or are there other other ways you can tap other areas you can tap to get that down payment or borrow more money, right? Like do you need to sell stocks to buy the house? I I guess for some people they have to use it for down payment these days because down payments are so much higher. But what's the lowest you can put for a down payment? Three and a half percent, 5% something like that.
I actually don't know. I mean, 0% with a VA loan, but Yeah.
Yeah. So 0% down for a VA loan.
I think Yeah. For most people it's probably 5%. Yeah, five cents if I recently.
I did five for my first house. But if a house is a decent audit, it still could be a big number.
I I relate to this. So, I'm Yeah, I'm curious to hear what you guys think about this because if you know, we ever find a a house, you know, I will be pulling the down payment from a brokerage account.
Yeah, I mean, if if you're doing that comparison, I I look at owning a house, and this is not rental properties. This is buying a house to live in. I view that as more of a personal finance decision than an investment decision because housing is a form of consumption at the end of the day. Yes, you're building equity. It's a form of force savings. That's great, but there's ancillary costs involved. So, I don't think you can say how would this down payment have done if it would have gone in an S&P 500 index instead. People do that comparison. I think that is the wrong way of looking at this. You're looking at a roof over your head, a place you can make roots and make your own. And I don't think that you make that comparison like, "Oh my gosh, can you believe the opportunity cost here?" If you are a spreadsheet person like that, then maybe it's probably not right for you. But I think this is a personal finance decision, not a portfolio decision.
Yeah, Ted, that would be my take, too. Ultimately, you know, selling stocks to buy a house or condo for quote unquote investment purposes, I think that's a very silly thing to do for the most part, right? Unless you're getting just a tremendous below market deal on the cost. We just took a look at an inflation-adjusted chart showing that we're just barely above like the March 2007 peak in in in real estate prices of again actual houses sold, not valuations. Maybe all the nice houses are held forever. Who the heck knows? But yeah, Ted, particularly if you know that your positions are going up on that hypothetical. I mean, nobody can know, but yeah, I wouldn't just willy-nilly sell stocks to buy an investment property. I think that's probably a tremendous mistake. Gentlemen,
we've talked about in this show before in Eal Spirits that a lot of young people who would have maybe bought a house before are instead saving that down payment in the stock market or putting those extra payments that they are saving from renting into the stock market and probably are ending up better.
But the question is are I don't know is are they what do they want to do? What's so that that's what it comes down to be clear based on this this question from Ted I think he's talking about like his primary residence. I don't think he's talking about an investment, you know.
Great. Then yeah, then you got to take a look at what you're spending like in rent. And yeah, there there are compound benefits that go beyond the finances, beyond spreadsheet math on owning your your home, right? And again, Duncan, you're working very hard for that. Me and Ben have enjoyed the fruits of that. I think nothing is is more American on our 250th birthday than owning owning your own property.
Bill keeps talking about how housing prices can go down, too. I was told that if you buy a place on the water, it never goes down in value.
That's fair, right? Ask anybody who uh suffered from Hurricane Irene or Sandy uh in Delaware. Whether that was true or not, I wouldn't go that far. So, Dan, can we pull up a chart? Back to question two. I had a chart that I didn't do. Gentlemen, going into the weekend, I'm very curious. So, these are the this is the Bill Sweet Power Rankings for uh for for holidays. I think we've discussed this in the past.
Yeah, if we can pull that up. I uh yeah, I would put Christmas at the top of the list. You have kids, there's nothing better than Christmas Day. Memorial Day for me, gentlemen, is number two. We would just love that time of year, but Independence Day is number three uh on the list. So, I'm very, very excited to to be going into this weekend.
All right. I think where you put Memorial Day very like we can't say anything to that, you know? I mean,
All right, fine.
Yeah, you're you're biased, Bill.
That's absolutely true. And I mean, no shade to Dr. King who whose great speech. Everybody quotes, you know, the judge me by the content of my character, not the color of my skin, which is a great line from his speech, but I love the part that he quotes about uh the nation, you know, issued a check, right? And he comes to Washington DC in I think '63 basically to cash a promissory note. That's such a powerful line in American rhetoric and I think it rings through the ages. So, it's more about the time of year. I don't I don't really need or want a holiday in January after I've had my kids for two and a half weeks. They should be back in school in January. My
Wait, I don't even think I know when Washington's birthday is. Is that President's Day?
Yeah, it's President's Day. It's Yeah, he used to do President's Day for Washington in February and then Lincoln's birthday, I believe, was in March, but they combined the two, which is a great shame to uh to our 14th president. So, gentlemen, I will be spending Dan, can we pull up our uh our fort chart here or fort uh I will be spending uh the holiday at Fort Ticonderoga uh at Lake George in New York. And this is an absolutely strategic uh place in the American history in uh the end December of '73 and the early winter of '76. Can we flip to the next chart here? Uh, we had Henry Knox, one of the founding fathers and the father of American artillery, moving 59 cannon from Fort Ticonderoga that he stole from the British in order to bombard uh the the the city of Boston from Dorchester Heights. Henry Knox, a great American founder. Can we flip to the next chart? My question to you and to the audience, who is your favorite founding father up on the screen? I have one, but gentlemen, who's yours?
I mean, it has to be Washington, right? That's everyone's going to say that. Now, father of our country. I don't know. Some people were like Madison, Hamilton, or Jefferson fans. I don't know. Duncan.
Yeah. I I kind of enjoy a lot of uh Benjamin Franklin's tinkering and stuff that he did. That's kind of fun.
Yeah. Yeah. The lightning bolt guy, you know, put up a lightning rod and get get zapped. Yeah.
Inventing the bifocals. Great. Great biography.
Now, Bill, I hope for the sake of your kids that you're taking them to the lake part and not the fort part in 95 degree weather.
Oh, no. All fort. No one wants dad to drag him around the fort when it's so hot and sweltering and everyone's sweaty.
I have told them if they if they piss me off on the drive up, I will be firing them out of a cannon into Lake George from Fort Ticonderoga and that's how we're going to celebrate the birthday. Um, but I'm very excited. It's a great holiday. I want to wish the audience a very happy Independence Day. Very special one to me and you.
Yes, I like it. And uh, happy 4th of July. Go USA tonight. I hope I I hope England comes back and and wins because we want to see we want to take on the Brits on We want to defeat them in the World Cup final in July of our 250th year. Bring the British. Bring them on.
All right. And with that, it's time to go to the lake. Thanks everyone for in the live chat. As always, send us your questions. Ask the compound show@gmail.com. And we'll see you next time.
See you everyone.