Mindy: Carl and I were recently super lucky to record with the Money Guy Show. That episode released on Tuesday. Today, Carl and I are back to recap our biggest takeaways and how we plan to implement them in our portfolio and in our lives.
Mindy: Hello, hello, hello and welcome to the BiggerPockets Money podcast. My name is Mindy Jensen and with me as always is my husband Carl, but today he is in the hot seat as my co-host. Thank you so much for joining me, sweetheart.
Guest: Ooh, thank you for having me. I’m kind of scared you said in the hot seat. I thought you were going to go easy on me, but apparently not.
Mindy: No, this is the hard hitting journalism that our listeners have come to expect.
Guest: Okay, I’m done. Bye.
Mindy: So, Brian Preston and Bo Hansen are the hosts of the Money Guy Show. They’re both CFPs and Brian is also a CPA and Bo is also a CFA. And what this means is they know a lot about investing and taxes and we really needed to hear that. We didn’t just get some random financial podcast host advice. We got, we know what we’re talking about, this is our actual job advice from these guys, which is kind of nice. Did you see what I did to Scott and I?
Guest: Yes.
Guest: So, I’m going to throw the hard-hitting question back at you. A couple days, and this didn’t have anything to do with with this uh, podcast recording with The Money Guy Show, but I asked you, do you feel rich? Do you remember me asking that and what your answer was?
Mindy: Yeah, I remember you. We were sitting at the lunch table and you’re like, do you feel rich? And I’m like, no, why would I feel rich? And I actually have been listening to a lot of Colin Hay recently. He’s the lead singer of Men at Work and they’re on tour. So I’m like, oh, I’m going to listen to Colin Hay. He’s got this song called Waiting for my real life to begin. And there’s this line in there says, when I woke up today, suddenly nothing happened. And this question, do you feel rich? Well, no, I’m waiting for my real life to begin. And this is my real life right now. What am I waiting for?
Guest: I don’t know about you, but I did get some resolution to this question after we talked to the money guy. Is it the money guys cause there’s two of them? I don’t know how that works. The money guy, two becomes one. But we’ll save that resolution for the end. But to go back a second, I would have answered the same as you and that would be no, I do not feel rich, which is. You did answer the same as me. I threw it back at you. Yeah, and that’s what a lot of people say when asked this question, no matter how much money they have, but we’ll save that for a little bit later. Yeah.
Mindy: So Carl, I have talked to the money guys before, but this was your first time. What were you thinking going into the recording?
Guest: I was just a little, and by that I mean absolutely terrified. We have a very weird portfolio and we’ve taken some extreme risk and these people, I would guess tend to be more conservative. So, yes, I was absolutely terrified.
Mindy: What surprises did you have from their suggestions? Because I like you, I thought they were going to be like, wow, your allocation is terrible and you’re awful for having it. And even though I knew they wouldn’t say that, I didn’t want them to be like, you have to change everything.
Guest: My biggest surprise was their biggest financial recommendation. We have little to no cash in our portfolio and I knew they would tell us to increase that, but they told us to increase it by a lot or suggested, I don’t think they could directly give us advice, but their suggestion was to go big on that front, which we have not. We don’t even have bonds. I don’t even I barely even know what a bond is, so.
Mindy: We have bonds. I have bonds in my portfolio, my golden ratio portfolio that Frank Baskets helped me set up. I want to say I have like $500 or $1,000 in bonds.
Guest: Okay.
Mindy: So we’re not completely bond free, sweetheart.
Guest: I have gold bond in the medicine cabinet upstairs to decrease my friction with the bike seat, if you know what I mean.
Mindy: That was my biggest surprise too. And I had been thinking maybe we were a little light on cash. I posted on Long Angle a couple of days before we went down to record the podcast with them and I was asking how much cash do you hold? And Tad Fallows, one of the founders of Long Angle said, oh, according to our annual member survey, people typically hold about 5% in cash. And I was like, oh, I forgot about that annual member survey. I need to go back and read that. That’s pretty fascinating and I invite you to read it too. But we don’t have 5% in cash. When they flashed that slide up on the TV screen, they’re like, here’s your portfolio and here’s what you have in cash. Quick math is like 0.7%. Not 7%, 0.7% in cash. And that looked kind of foolish when they popped that slide up.
Guest: And I’ve since spent that on our house build, so now it’s even more. winning. I was there for 0%.
Guest: A little bit more.
Mindy: When I was the community manager for Bigger Pockets, I was in their forums all day long, and people would always ask, how much cash do you have? And there was a lot of responses along a similar vein. I hold as little cash as I possibly can because I want my money working for me. And one of the things that Bo and Brian told us is you’ve already won, so you don’t need your money out there working for you, generating more dollars. You need more of a buffer. And while we, I think we were both on the same page with we need to have more cash, them telling us to put 5% in cash seemed like a lot cuz then they showed us what that 5% number is and and that is a lot. But what was really interesting is they were pointing out how we’re thinking about money in terms of years in spending. We have a whole year in spending except you just said you spent it in like one day. So we’re building a house, so we don’t have a year of spending in cash. We have a year of our normal spending in cash maybe, but we’re spending a whole lot more. Plus, something I don’t think we had considered. We have one daughter in school right now, and for the next two years, we will have one daughter in school. But in three years, we’ll have two daughters in school for at least one year. And then after that, we’ll have another at least three years of a daughter in college. So we’ve got some pretty hefty bills coming our way and a whopping 0.7% in cash. And I think we’ve always been thinking about our cash incorrectly.
Guest: Are you saying that you’re going to get another job to raise more cash for our family and to keep me in the ways to which I have been accustomed?
Mindy: So you want me to add to my two jobs while you sit around with your zero jobs?
Guest: Oh no, I’ve got a lot of jobs. I’ve got one very big job.
Mindy: What is that?
Guest: I don’t know, the house stuff. I’m managing that. It’s a big job.
Mindy: When is the house going to be done?
Guest: I don’t know, like in a week.
Mindy: Yeah, so you want me to have then three jobs and you’ll have zero jobs.
Guest: I think I’m going to need some downtime after that job.
Mindy: I kid, I kid.
Mindy: So what sort of timeline do you anticipate us increasing our cash? Because I don’t think it’s a good idea for us to do it all at once. That’s going to be a pretty hefty tax bill.
Guest: No, I see us doing that over the next five or six years, but one thing we could do to decrease some of the risk is we have some big investments in our self-directed 401ks. So we could potentially move to cash in those, then we wouldn’t have to pay capital gains and then we could access that cash with a 72t. Of course, that causes a whole other tax problem because then we’re paying ordinary income tax instead of capital gains, which we would pay if we sold from our post-tax brokerage. So, yeah, it’s a whole big can of snakes.
Mindy: Yeah, it’s not even a can of worms, it is a can of snakes. That brings up another point. Brian said, you have 85% of your entire net worth in five stocks. And I was like, I didn’t know it was 85%. I knew we were tech heavy. And then he said, and you have 70% of your entire net worth in companies controlled by Elon Musk, who, without getting political, has had a bit of a volatile last couple of years. So I didn’t realize it was 70%. Again, I knew it was a lot, but I never did the math to do 70%. And you said, well, it’s not 70%. And I said, well, what about all those index funds? They hold some of our Elon stock too. And you’re like, oh, maybe it is 70%. I bet Brian was right.
Guest: Yeah, he is closer to the truth and we will work on diversifying that very soon.
Mindy: So what does very soon mean?
Guest: So our biggest holding in that is SpaceX. It is still locked up. As soon as those lock up periods are over and we have actually have access to it, we can reassess at that point. So in a couple of months.
Mindy: In a couple of months. Okay. And would you sell within the 401k? Because again, if you sell within a 401k, you’re not realizing any gains that gets taxed. It all just happens in this magical account and then you can buy something else. So you’re reducing your exposure to the company without incurring taxes.
Guest: Yes.
Mindy: So, is that where you would go?
Guest: Yeah, I think so.
Mindy: What about the post-tax account? One of the things I really liked is they pointed out that for normal people, selling your post tax stocks could have the lowest taxable impact on you in the year that you sell. And that’s nice, but they’re not talking to normal people, they’re talking to us. I still have income. The bulk of my income comes from real estate agent commissions. So it’s a little unpredictable, but the last two years have been really good and every year I get to June or July and I’m like, wow, I haven’t really sold a lot of houses. And then at the end of the year, I sell a ton of houses. But if we had no income, we could sell, what is it number? 96,500, 97,000.
Guest: Yeah, long-term capital gains are close to 100,000 for a married couple. So yeah, we could realize 100,000 in long-term capital gains and not pay any taxes on it.
Mindy: But that gets stacked on top of my income. So.
Guest: Yes. Just you see how I said my income? And that’s why I don’t want to work. I don’t want to increase that problem. By me not working, it allows us to sell this tax-free. So I’m but you’re not working, it allows us to save money on taxes. You’re such a giver. Yes, yes. I’m helping us.
Mindy: But yeah, you stack that on top of my income then our income, I’ll I’ll let you have some of that too. What’s what’s yours is mine, what’s mine is yours.
Guest: Yes, dear.
Mindy: It stacks on top of our income. So if I make $200,000 as a real estate agent, then we sell another $100,000, we have capped out the 0%. So any long-term capital gains that we have will be taxed at the 15% bracket up until we max that out. I don’t think we would max that out.
Guest: No.
Mindy: But that’s a good thing to consider. We need to sit down with a spreadsheet and just be like, okay, if we move this here and carry the nine and move this over here, then we can pay this kind of tax.
Guest: Yes.
Mindy: Because I do still think that selling some in our after tax brokerage account would be a good idea.
Guest: Yes.
Mindy: Which leads me to another thing that they suggested is having an annual income and tax audit that we do ourselves at the end of the year.
Guest: Sure.
Mindy: Have you ever heard that suggestion from anybody in your life ever?
Guest: Um, I think so. Was it you?
Mindy: Yes, it was me. I love that Bo and Brian are like, you should have this audit. And you’re like, oh my goodness, that’s a great idea. Meanwhile, five minutes before that, I was like, we should have this audit. and you’re like, I don’t know.
Guest: I’m not sure if that’s how it went down, but you’re you’re probably right. Yeah.
Mindy: That is exactly how it went down.
Guest: What other surprises did you have from their suggestions?
Guest: Okay, so this next one was really interesting because it just hit home this week actually. Brian said you should really try to teach your kids about money. And my thought when he said that was, we do that all the time. If you talk to our kids, they will say mom and dad talk non-stop about this stuff. But then he said something else that was really interesting. He said, get them started with a Roth and start putting money into that so they can see the compound interest. And that’s when their eyes will light up. To back up a second, we had actually told our kids that we were going to do that very thing and our younger one was like, yeah, you know what, so I can’t have the money now. I’m like, no, it’s for retirement. And she became much less interested after that.
Mindy: Yeah, I hadn’t clarified to her. I told her I would match her salary dollar for dollar. and she thought that meant to put in her pocket and just spend. I was like, no, that goes into your Roth IRA because I do think it’s a little unfair to expect your 15, 16, 17 year old kids to be putting money away for retirement.
Guest: But then, a real interesting thing happened. We came back from this podcast recording and she came up to us, she’s like, Dad, guess how much money I made last week? And her eyes were all lit up. I’m like, I I have no idea. 300 bucks. She’s like, more. I’m like, 800, more. So it turns out she’s got a job at Taco Bell now and we don’t get free food out of that though. I don’t know how that didn’t work out in our favor. we can afford it. Anyway, she has a job at Taco Bell and she has all these side hustles babysitting. She’s like, Dad, I made $1,000 last week and she was so excited for that. So I could totally see what Brian said, like, show them the value of compound money. So show so show that to them now, put money in their Roth and then show and then show them the statements or allow them to have access so they could see that money growing. When she said this, I’m like, Daphne, do you know what’s even better than seeing your money grow like that? I’m like, and she’s like, what dad? I’m like, not having to work for it. When the money starts doing that by itself, that’s even better. Just like me, I don’t work and the money keeps getting bigger.
Mindy: That’s why I don’t work. That’s not quite why you don’t work. One of the things that we do non-stop is talk at or to our children about money. We talk about specific stocks, we talk about index funds in general, and one of the things we had you had been talking about was Nvidia. And Daphne said, ‘Oh, can I buy Nvidia?’ Well, you can, but what’s their stock price? Like 800 bucks or something? 1500 bucks?
Guest: I don’t know.
Mindy: You don’t know? Oh, cuz you don’t have that stock. That’s like the one hot stock in recent years that you haven’t purchased. But she wants to buy that. We can buy that for her in her Roth IRA. We can show her the value of purchasing these stocks that they’ve done research on. She has her research is just listening to us talk. And also buy index funds and show her how they’re going up and going down, especially when one of them has an up day and the other one has a down day.
Guest: Yeah, absolutely. They need to learn that stuff right now and not when they’re 40 like we did.
Mindy: Okay, when we were talking about this at the airport, we were running through a bunch of different things. You said something that I thought was really interesting. You said, I’ve never felt wealthy because we put a fence between us and the money. The money is for the future. And the future is not now, so therefore it’s not for us. It’s just it’s down the road. It’s down the road. We we’re generating income and we’re spending this and then everything else is for the future. But the future is now. And we have been letting the tax tail wag the dog for our entire investing career. We’ve been prioritizing current year tax deductions and not thinking about RMDs. One of the things that I want our listeners to start thinking about, especially if they find themselves in a position where they have more than their fine number, I want them to start thinking about RMDs. Scott and I call this the middle class trap, where you’ve done everything right, you’ve been contributing for your retirement, but you’ve been doing everything right for a traditional age retirement. If you want to retire early, you need some funds to bridge from your retirement date to the day that you can actually access those funds. But even more, if you have had success, and we’ve what, we have like 15 years of fairly up stock market. If you’ve been investing for a while, you might have quite a bit of momentum. And then you become 73 or 75 and all of a sudden the the government is like, ‘Oh, I want my money now.’ I want people to start thinking about RMDs. And you and I have 20 years before RMDs kick in if they kick in at 73. I don’t know, do they kick in at 73 or 75 for us?
Guest: I thought it was 75, but I’m not sure.
Mindy: Oh, well then we have 22 years for me and 23 years for you before we start getting these RMDs. But if we don’t do something about it now, we’re going to be paying pretty hefty RMDs. And yeah, yeah, yeah, this is a great problem to have, but I’m a much better steward of my money than the government is. So I would much rather pay them less. And the military had to have a bake sale to pay for all their bombs, I’d be okay.
Guest: I think you told me once that you married me because I was younger and I’d be able to punt my RMDs. Is that you remember that conversation?
Mindy: No, I was drunk.
Guest: My big thing about our lives is uh, we spent so much time optimizing for not paying taxes. And we live frugal, so if you’re a computer guy and make all right income and you can be frugal on top of that, you can put all your money into a 401k. We had a self-directed 401k and your company can match 25%. So we optimize so well and it feels a little bit weird. And this is all on me, you’re much better adjusts than me. It feels weird to stop accumulating and then the third thing is it feels even weirder to start taking that back out and paying the taxes on it. But it’s just, yeah, it’s the natural, it’s a very nice problem to have.
Mindy: Somebody’s going to be paying those taxes.
Guest: Might as well be us.
Mindy: Might as well be us. And something that Scott has pointed out multiple times on this show is that he thinks the current tax brackets are relatively low. And that the government has been spending a lot of money. Look back five years, we had COVID, everybody got a check. We have a war. There’s a lot of things that the government has been spending a lot of money on. At some point, those bills are going to come due and we’re going to have to pay for them. And who pays for what the government spends? The American taxpayer. So tax brackets will most likely go up in our lifetime. Yes, they’re permanent right now, but they’re only permanent until somebody comes and changes them and then makes those permanent. And who knows when those will actually change. But if we can pay taxes in a lower tax point, that’s just better. And while also pulling money out of the 401k so we’re not subjected to RMDs when we’re 75.
Guest: Did they give us any advice that you didn’t agree with?
Guest: I was surprised by how much I agreed with everything they said.
Mindy: I was too.
Guest: The one thing they might have said that I wasn’t quite on the same page were they said most people hold their Roth and near and dear until the end and I’ve never thought that way. So they talked about the order of operations and specifically the order of withdrawal operations. They said it’s best for most people to get money from your post tax brokerage first and then your 401k and then your Roth IRA finally last because that money is you’ve already paid the taxes on that so that is going to grow tax-free. And I’m not sure I agree with that. I would consider taking at least the principle out of that now because we can do that. That’s the one thing I didn’t completely agree with them on.
Mindy: Well, let me tell you why they said that. So, we have more money than we will spend in our lifetime. So we will leave some to our children. If we leave them 401k money or traditional IRA, I say 401k. If we leave them traditional account money, they have to withdraw that within 10 years, over the course of 10 years, it has to be zeroed out. If we leave them Roth account money, they have to withdraw that over the course of 10 years. Or at the end of 10 years, it all has to be taken out. But if we pass when they’re in their 40s, 50s, 60s, those could be their highest earning years. So now they’re taking out our traditional money that we’ve left them at a higher tax bracket. If we withdraw most or all of our 401k to live off of and leave them the Roth accounts, they inherit the Roth, they can leave it there for 10 years, pull it all out and just grow and then pull it all out on the very last day and they just have this giant pile of cash that they’re not paying any taxes on. So that’s what they’re talking about with leaving the Roth for last. I see what you’re saying because we can get at some of those funds without incurring taxes or any penalties. Right now I’m 53, you’re 52. We would have to pay a 10% penalty on any money that we withdraw from our 401k. We pay 15% taxes on the sale of after tax dollars, but we pay nothing on withdrawing from the basis of our Roth. So, does that make sense why they would say that last?
Guest: Yes.
Mindy: Okay. So I didn’t disagree with that. When they first said that 500,000, I was like, are you kidding me? That’s crazy. But the more I talk to people, the more I read in my thread on long angle, the more that I talk to people, I’m in several mastermind groups and I’m just asking everybody now, in terms of your net worth, how much cash do you hold? And what I find interesting is a lot of people are right around that 5%. Somebody said that the GoBundance investing group did a similar survey and they all hovered around 5%. But some people were answering, oh, I have 6 to 12 months of expenses. That’s not answering the question. In terms of net worth, how much cash do you have? And about 5% seems to be the way to go for people who are financially independent or feel like, you know, they don’t have to continue investing if they don’t want to.
Guest: There’s different ways we can get to that 5%. You could just make a little bit more money to get us there so we don’t have to sell our investments.
Mindy: That’s one way.
Mindy: You’re so marketable. I’m not. That’s where I’m going with all this. It’s really a compliment to you.
Guest: And it feels like a compliment.
Mindy: Okay, so they gave us some homework. The first one was build cash up to $500,000. They want us to review our overall allocation. And we’ve already discussed this a little bit. The stuff in the 401k we can start divesting ourselves of if we want to alter our allocation. Once you start selling, and I’m talking individual stocks because I they’re not telling us to diversify out of those index funds. Once we start selling those individual stocks, where do you feel that money should go?
Guest: Oh, just to index funds. Uh, we’ll probably go with VTI and that might be it.
Mindy: Really? Just VTI?
Guest: Yeah. Do you have a, do you want to do M I N D Y?
Mindy: They don’t have one yet. And what is your timeline for changing our allocation? And what sort of allocation feels comfortable to you? I know that we’ve always been very comfortable with riskier investments.
Guest: Ooh, I I think uh, we evaluate once we have access to these shares. We invested privately before the IPO. So we re-evaluate in August and through December when the shares exit their lockup period and uh, make a decision with the information we have at that time.
Mindy: Oh, what a non-answer? I can hear all the listeners being like, really, Carl?
Guest: I think we we do need to diversify though. We have um, way too much in that.
Mindy: Yeah, we do. It’s been fun, but now we need to be more protective of our net worth. The end of year tax projection, annual end of year tax projection, I think that’s a really great thing that we should be doing. We’re going to start that. They said like October, November, but because my income is so unpredictable, I think beginning of December would be a better time for us.
Guest: I think so too. That’s enough time to um, move things around or pull any last year year end moves. So yeah, we can I’m good with that.
Mindy: Yeah. And finally, one of the things that they wanted us to do is talk with our kids and consider making gift donations to them in the amount of their income or up to what is it? 7500 this year for the Roth contributions?
Guest: I think so.
Mindy: Yeah, I think it’s 7500. Either to the top of the Roth contributions or matching their income. So Daphne will probably make $3 or $4,000 this year.
Guest: Yeah.
Mindy: So we can gift her three or $4,000 that goes directly into her Roth IRA. That way she still has spending money and she’s still growing her Roth.
Guest: Yep.
Mindy: They did make a comment about you can gift up to the top of their babysitting money too. So that’s something that we’re going to have to do a little bit of research in. You can go to the Bigger Pockets Money website, biggerpocketsmoney.com and sign up for our newsletter because as soon as I figure out how to do that, you can bet your butt, I’m going to be writing an article about it for our blog. Sorry, but I needed to tell people that. Big takeaway?
Guest: Big takeaway. What is your takeaway? Hey, you teased something at the very beginning of the episode. You’re like, oh, do I feel rich?
Mindy: I did and that’s what I’m getting back to.
Guest: I answered no to that question when I asked you before we recorded with Bo and Brian, The Money Guy Show, and as you alluded to, I said that because we have a good net worth, but we haven’t allowed ourselves to access it because I’m so afraid of optimizing for taxes. I’m like, you know what, that money can just sit over there and we’ll continue to do our thing and uh, we’ll draw it down over the next 40 years of our life. But after talking to them, I feel okay with starting to sell this stuff off and moving it to cash and I do feel better about everything because I feel like we can actually access it now, which is a pretty cool feeling. I felt liberated after talking to them. Yeah, it’s probably one of the, it’s the most profound financial insight I’ve had this year and um, you’ve probably told me this insight too, right?
Mindy: I probably have.
Guest: Multiple times over the course of the last few years.
Mindy: If they would have told me first, I would have denied it and then when you would have, it’s just the last person to get to me, I can be stubborn.
Guest: Yeah, you can be. Yeah, when we were recording with them, I thought about like they were like, you need to start getting rid of these, we suggest that no one has such a high concentration in these individual equities so you should consider selling them and I thought at the that moment, I had my laptop next to me and I’m like, you know, there’s been some I’ve been watching to get rid of, so I’m gonna get my laptop out right now and hit the sell button. I did not actually do that, I don’t want to disrupt the flow of the show, everything was going good, but um, we will do that shortly.
Mindy: It’s been uh five days since we recorded with them. Have you sold anything yet?
Guest: We’ll do it on a live BP money recording.
Mindy: I’m going to tell. I’m going to call up Brian and Bo and tell them. Carl still hasn’t uh, sold anything yet.
Guest: Is this show Bigger Pockets Money or Bigger Pockets Mindy? What is it?
Mindy: It’s Bigger Pockets Mindy, but we pronounced money.
Guest: Okay, got it. Got it.
Mindy: So uh, any final thoughts?
Guest: No. What did you, do you feel richer or do you feel rich after talking to them? Did your perspective change like mine did?
Mindy: My perspective didn’t change. I was surprised at the cash comment and I had already been thinking about increasing our cash. So that part wasn’t really a shock. It was kind of validating that they’re saying, yeah, you should totally do that. I was really surprised that you agreed with them. And I’m pleasantly surprised Bo and Brian, thank you so much for changing his mind even though I’ve been trying for, how long have we been married? 24 years?
Guest: I don’t know.
Mindy: Yeah, it’s been great. Okay. So, we would love to hear from you. What did you take away from our conversation with Bo and Brian? What did you take away for your own personal situation? Do you have less than 5% of your net worth in cash and did that kind of spark you to think, hey, maybe I should have a little bit more in cash. Or do you have a specific reason for not having quite that much in cash? If you’re back where we were when we recorded at 0.7% of your net worth in cash, are you going to make any changes? Do you plan on making changes? What about your allocation? We would really like to hear from you. You can email mindy@biggerpocketsmoney.com or carl@biggerpocketsmoney.com. It’s Carl with a C. We really would love to hear from you how you’re going to take our conversation and uh, implement it in your own financial strategy. All right, just because we are done talking does not mean you are done learning. Hop on over to the Bigger Pockets Money website, which is conveniently biggerpocketsmoney.com. We’ve got resources, newsletters, calculators, all sorts of templates for you to help you on your fi journey. So maybe you don’t find yourself in the middle class trap like us. All right, should we get out of here?
Guest: Let’s go.
Mindy: That wraps up this episode of the Bigger Pockets Money podcast. He is Carl Jensen. I am Mindy Jensen saying uh,
Guest: Good night moon. See you soon.
Mindy: Ooh, good one.
