Mindy:
Today’s guest discovered the FIRE movement seven years ago and has been methodically building towards financial independence and is now just four years away. Cody is going to break down the strategies, mindset shifts and practical steps that have kept him on track towards early retirement.
(Music)
Hello, hello, hello and welcome to the BiggerPockets Money Podcast. My name is Mindy Jensen and with me as always is my advice-only co-host, Scott Trench.
Scott:
Thanks Mindy, great to be here dispensing free-only financial advice for entertainment purposes only, of course. We are so excited to be joined by Cody Garrett today. You may recognize his name because he is very active in our BiggerPockets Money Facebook group community. He is a frequent guest on ChooseFI and in the ChooseFI Facebook group. He’s a musician turned financial planner at Measure Twice Financial, and we’re going to hear his FI story today and then end our conversation talking about portfolio theory, which you’ll definitely want to stick around for. Cody, welcome to BiggerPockets Money.
Cody:
Thank you. Thank you. So glad to be here. It’s always fun talking with my fellow nerds in the FI community. Uh, so Mindy and Scott, you might not know this, but you were one of the first podcasts I ever listened to in this space. As a professional musician, it was you, it was Joshua Sheats from Radical Personal Finance, ChooseFI, you’re Mad Fientist. You were in the core. You were in the core four, uh, when I back in 2018 when I first started listening to podcasts at two times speed.
Scott:
Well, thank you for listening and thank you for making it come full circle and coming on the show today.
Mindy:
In terms of musician turned financial planner, that’s like left brain and right brain sort of thing. So, are you like whole brained?
Cody:
Yes, I call it left brain creative, which means I’m an analytical data-oriented person, but I’m always working in creative fields, right, which have variants and like, you know, which which adds the fun, right? So it’s not just a black and white spreadsheets, but like how can we add, I literally have a trademark, keep finance personal, even now as a financial planner, where it’s all about, hey, how can I take all this quantitative stuff but actually like put in the qualitative side? So I love being a left brain creative. And a lot of people say, oh, moving from music to money, that must have been, that must have been very difficult, but it was actually something that I felt like a natural transition for me.
Mindy:
And what kind of musician were you?
Cody:
The one who tried to get paid. No. Uh, the one who actually charged money. I was a professional musician from 2008 to 2018. So, uh, to give an example of like a day, you know, like a week, weekend in the life of Cody back in, let’s say, you know, before I became a financial planner, I was a full-time contemporary music director at a church. Like in one month, I was working full-time as a music director at a church. I, I played 31 Broadway shows in one month on stage as full wig and and all that’s, all that crazy stuff. I also did wedding gigs, music camps, you know, being a church director, also a contract arranger. So I worked for Motown Gospel back in the day. So I love, you know, anything with a good bass line and a beat, I’m down to to write music for. Uh so I, I mean, as you know, like as a musician, you usually can’t just do one thing and be financially secure. So, you know, wearing multiple hats, I effectively did everything but one-on-one teaching. So, you know, usually have your performers and your teachers. I was a performer, arranger, music director. I wore whatever hat was necessary to play the gig.
Scott:
When you performed, what, what instrument did you play?
Cody:
Oh, I played, uh, keyboards. So keyboards. And by the way, some people ask, what’s the difference between a keyboard and– and a piano? So a piano you play sitting down and a keyboard you play standing up. So I play keyboard.
Mindy:
And what kind of salary were you making, what kind of annual income were we seeing as this musician who is getting paid? Cause I have a lot of musician friends who don’t have the same resume.
Cody:
You know, down in the south, down here in Texas, the most stable form of income for a musician is being a church musician. So as a music director, keyboardist, um, I was making about $40,000 as a W2 employee at a church. And then I made about 20 to $25,000 per year in 1099 gigs, the wedding gigs, the Broadway performances, all that kind of stuff. Uh, you know, kind of the on-call, and um, and along the way, I actually, it’s funny, I pulled up, I’m a nerd here. I pulled up all of my tax forms. I went to the IRS website and pulled up all my old tax forms from like 2016, 2017 and saw that effectively, I made about $60,000 as a musician. Uh, I got married in 2015. My, my wife has always been a stay-at-home spouse. You know, kind of I guess another way to say that is she’s never worked outside the home, but she works a lot inside the home. So we were, we were been in that like 60 to $80,000 range before I became a financial planner.
Mindy:
Okay, so not destitute, but not rolling in it either. What was your financial position when you made the switch from musician to financial planner?
Cody:
So back in 2018, so I was a professional musician Wednesday night and a financial planner Thursday morning. Uh, I can see here looking back there. It’s funny, you know, we talked about the, the the income there. My 403(b) balance from the church was $5,000. I started my first Roth IRA at $5500, and that was my only source of investments outside of about 10 or $20,000 in a savings account back in 2018. I did not know what an IRA was or anything like that at that point.
Scott:
So what prompted the switch to much more aggressively pursuing wealth creation? What was that trigger point?
Cody:
The biggest catalyst for me from going from music to money actually wasn’t to make more money. It was actually, um, I was working eight to five, five to eight, and eight to twelve almost every day. And the number one catalyst was, how can I create a life where I get to eat dinner with my wife every day? That was like the simple, simplest way of saying it, is how can I design a life where we can maintain our desired lifestyle, which by the way, like was only spending, you know, about four, 4,000 to 5,000 a month at that point. How can we maintain that lifestyle but still be able to eat dinner with my wife every day? You know, that was kind of the, the seed that grew into like, okay, maybe I go into the direction that I naturally enjoy, which is personal finance after listening to your podcasts and others.
Scott:
Awesome. So, so what changed about, uh, your situation from that point? How did you begin shifting towards this present lifestyle?
Cody:
So the big levers for me was prioritizing education. Again, I already had a degree in music, but that wasn’t necessarily going to help me moving into personal finance. So I went into the CFP education program, which is kind of like drinking out of a fire hose, right, in terms of education. It was like just go super deep, you know, super fast. So prioritizing education, accelerating my experience. So, as you can imagine, in 2018, you know, I was about 30 years old at this point, I felt like I was 10 years behind. I did a 10-year career of music and now I feel like, oh wow, like I’m, quote, unquote, competing in this world of personal finance with people who have been doing it since they graduated 10 years ago. So rather than getting, you know, 10 years of experience in 10 years, I felt like I had to get 10 years of experience in like one to two years with the education and also developing, expanding my network and really talking to a lot of people. Every time I drove, even to my church job, I listened to podcasts at two times speed on the way there and back. So I was probably listening to, you know, at least two to three hours of podcasts a day during my breaks or during my lunch hour. And you mentioned the different ways to grow, you know, grow your wealth. My was definitely like the create, right? So like I started creating really early on with like a go giver approach, you know, uh, kind of trying to give to others without expecting something in return, which as you know, kind of like comes back to you. A big part of it was avoiding unintentional lifestyle creep. So most of the things that my wife and I enjoy, thankfully, are free or low cost. So, you know, even if we eat out, we eat out once a week. That’s kind of like our rule for ourselves is we eat out once a week. And since being married about 10 years ago now, I think we’ve only eaten out for over $30 maybe like a handful of times. So when we do eat out, it’s typically like the 20 to $30 meal. The last one was simplifying and automating index fund investing, and then a big part is paying myself like an employee. Regardless of my income sources, I paid myself a base salary from my, you know, from my taxable brokerage to my checking account each month, regardless of how much I was making from my various jobs.
Mindy:
I love a phrase you said, we are avoiding unintentional lifestyle creep. This is where I am starting to embrace intentional lifestyle creep, but I’m struggling with like, what’s the difference between lifestyle inflation and intentional lifestyle inflation? And I think it was that word intentional that you just used. I love that so much. And you said paying yourself like an employee. If you have a company, if you’re self-employed, you should be making money and if you’re not making money, why are you doing it?
Cody:
So one thing I want to mention about the lifestyle creep, one question I ask people when I first, you know, learn about them and their money is I ask, do you earn more than you spend or do you spend less than you earn? You know, both of those assume that you’re spending less than you earn, but one of them is out earning your spending and the other is under spending your earning. The intentional part is that I’m intentionally spending less than I make rather than they’re just trying to over earn what I’m spending. So that’s where the intention really comes in.
Mindy:
Curious to hear how Cody is investing to achieve FI in four years? We’ll be breaking down his portfolio allocations right after this.
(Music)
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(Music)
All right, on that note, let’s jump in with Cody. What I thought was awesome about what you said, you know, a few moments ago, is you listed like five or six different very powerful frameworks, and then you, and then, you know, it’s very clear we can go into the specifics in each one of those to kind of think through them. And I and it’s that’s what I think perhaps those podcasts or that self-education component did for you even more perhaps than the CFP training. I would imagine is is these frameworks which are which I it it’s clear to me you have a very crystallized philosophy around wealth building and how, what, what good looks like for you for money. So first, did I get that right? And then second, could I go into one of the a couple of the frameworks if if so?
Cody:
By the way, you might be wondering, hey, did Cody learn all this in the CFP curriculum? I would say the the CFP education program is primarily created to serve people who are retiring just at, you know, right at 65, you know they’re claiming Social Security, right, they’re getting on a Medicare. Yeah, all of those big levers that I that I pulled, those seven big levers were all things I learned from the FIRE community. I didn’t learn that through my academic education.
Scott:
Let’s start with the first one you listed, which is probably out of order here, but you said you created, you know, with without any intention of necessarily understanding how that would come back. What what does that mean specifically in your case?
Cody:
Yeah, so in my case, it’s this term, when you teach, you learn twice, kind of tagging along with that idea of accelerating your experience. Anytime I learn something about personal finance, whether qualitative or quantitative, I’d say who can I teach this to? And as you know, teaching others, like as you do on the podcast every day, you know, helping your millions of future millionaires, when you teach, not only are you serving and helping others, but you also tighten your own knowledge along the way. So if you can teach something, that means you truly understand it. At the very beginning, even just going into the CFP education program, I surrounded myself with people, they weren’t even necessarily interested, but they at least allowed me to teach me what I was learning. So my my wife for example, it’s like she is not the spreadsheet spouse in our family, but she understood how valuable it was to me to be able to teach her what I was learning to tighten my own knowledge. She’d sit back and let me teach her a concept about, let’s say, oh, backdoor Roth IRA, this thing’s so cool. And these are the types of things that I kind of get excited about. She’s not necessarily excited about it, but she knows it’s valuable to allow me to teach that to her because she knows, hey, Cody’s learning twice. Like I’m learning at 2X speed, not just listening at 2X speed, when I surround myself with others that I can educate through a blog or a podcast, or even my wife in the living room after my long day at work.
Scott:
Framework eight is patient spouse.
Mindy:
I’m very lucky in that way as well. Same. Same.
Scott:
Okay. Great. Walk us through um, you know, on the income side, what what did um, this change from being a full-time musician look like from an income perspective to to the financial planning world? Were you able to retain any of the, I guess, bonus income from some of the extracurriculars that were driving income as a musician? And did that help you realize this goal of dinner with your family?
Cody:
Yeah, so thankfully it wasn’t too big of a change. I did have W2 income. I wasn’t just a gig musician, so I had some W2. So I was used to that. Uh, I became a financial planner in September of 2018 and I played my last professional, you know, paid music gig in September of 2019. So I kind of allowed myself to not have this like really hard, you know, cold turkey like, I’m no longer a musician, now I’m a financial planner. I had kind of like a year of transition that really helped me kind of go through that, you know, financially and emotionally. The one of the hardest things for me is as a new financial planner, I had somebody tell me, hey, well now that you’re no longer a musician, and I was like, oh, that hurts. It’s like telling like a, a Marine that they’re no longer a Marine, right? So, you know, going from music to money, like I very much had my identity as a musician. So it actually took a year for me to like gently transition into saying, hey, like I’m still a musician, but that doesn’t mean it has to like be my identity and I can only surround myself with other people like that. When you’re a career changer, you’re going to realize that uh, a lot of the people that you thought were your friends were really just your professional colleagues. So I went from having like you know, 500 musicians in my phone to a year later like really talking to maybe like one or two of them. Part of that’s not being really intentional about developing, you know, keeping that network strong, but I also realized, in a good way, that a lot of times like who you surround yourself with, like that’s going to change as your life transitions, whether career or moving into retirement as well.
Scott:
Yeah, I feel like that’s true in a lot of different fields, right? Sports, jobs, as life progresses, the few best people, the few closest people stick with you, but that community is surprisingly malleable.
Cody:
Thankfully the FI community is like one of those that potentially could be with you, you know, through the end of life. It’s like the, you know, playing golf, you can play golf forever.
Mindy:
So, Cody, what was your income transition? You were making around 60-65 as a musician. What does a CFP make?
Cody:
So, yeah, CFP is definitely all over the place because, uh, you know, CFP is just a designation. So there’s some who only work in, you know, commission insurance space. So I don’t do financial planning at all, even though it’s in their, you know, in their designation name. Uh, I would say on average, you should expect to make within your first three years as an employee, kind of in that like 50 to $100,000 range. Once you become a CFP professional, start becoming a lead advisor, lead lead financial planner, I think you’re in like, again, I’m just kind of ballpark, ballpark here, 100 to $150,000. And the accelerant or compounding really comes in terms of either either staying as an employee but being more in like production, like AUM, like building up, you know, really gathering assets is kind of maybe, a colloquial way of saying that. Or you become an entrepreneur, which I felt a lot more comfortable being really a financial planner rather than trying to get people to roll over their 401(k)s. Maybe we can talk about that in a future conversation is, you know, the different models out there and which might be best for different phases of life. At this point, uh I own three businesses, uh but my financial planning business, the first year um, I launched it, uh, I made around like 125, $150,000. By this point, I’m at 250 to 300 gross income. Like kind of take home net pay is $140,000 a year. So my net pay really went from like 40 to 60 now to, you know, 140, but we’re still in that way, we’re still spending about $65,000 a year in terms of personal expenses.
Mindy:
So where’s all that extra money going?
Cody:
My funny kind of ballpark goal is to at least save $100,000 a year, and to, you know, long-term investments. So for us, that’s just, uh, we don’t have any rental real estate. It’s really just putting money into, uh, really broad diversified low cost index funds. Yeah, so looking back, you know, January 2020, which was kind of when I got my roots in as a new financial planner, uh and now it’s July of 2025, you know, now as an entrepreneur, my total investments, which, by the way, is all low-cost passive index funds, went from about $77,000 to $486,000 in about five and a half years. Annualized money-weighted rate of return is like a 25-26% annualized return, which Scott, as you mentioned on your, on your podcast many times and Mindy as well, that creation is one of those things, like if you want to go beyond kind of like the 8 to 10% annualized return, you’ve got to do something like create, right, or, you know, develop your income somewhere else, you know, rental real estate, leverage, other things. So, uh really entrepreneurship, launching three different businesses was the way. Most of that compounding wasn’t really from the investments, right? The first 10 years of investing is really going to come from your income and your ability to, you know, save and invest. And certainly I’m going to, I’m definitely going to, hopefully, continue riding that compounding in decades moving forward. But we feel really good at this place. Kind of coast FI. Like we could, we could kind of stop, we could stop invest saving and investing and still retire at the typical, you know, 55, 65. But we really want to push back that FI date to around 40 to 45.
Scott:
You’ve mentioned this, you started three businesses now a couple of times and I’m, I’m missing two of them. What, you we have the financial planning business. What are the other two businesses that you started?
Cody:
The other two businesses are Measure Twice Money, which is actually a consumer facing business. That’s teaching, you know, non-advisors how to become, effectively become their own financial planner, you know, learn how to create their own financial plan. That’s uh, you know, I have a video course, a five-hour video course on how to create your own financial plan as a family without having to hire anybody. I’m no longer accepting new clients as a financial advisor. So anybody here looking for an advisor, it won’t be me. I’m also writing a book with John Melaney right now on tax planning to and through early retirement. That’s definitely on the consumer, you know, the measured twice money side. I also have measured twice planners, which is a community of about 500 financial advisors who really want to go deeper in their financial planning experience and education. What I wish I had in 2018, I’m building that now to help really give, you know, new and aspiring financial planners that clarity and confidence, the ones who feel behind like I did back in the day. So I’ve, I’ve created a video course and actually over 100 hours of on-demand educational content so that people can feel that really be able to 10X their, their accelerated experience in those first few years.
Scott:
What is your FI number?
Cody:
I’m one of those who I actually consider social security in my FI number because I like to be more realistic. So my FI number right now, I’d say is about 1.25 million. I expect to be there by 40, which is about four or five years from now. Expecting kind of like a 6 to 8% annualized inflation-adjusted return. So I’ve got, again, I’ve got all my own calculators for this stuff, but I’m looking at about like 1.25. I actually created this little meme of Drake, which is kind of, I redefined FI for myself. Instead of financial independence, retire early, it’s going to be financial independence, recreational employment. Even when we reach our FI number, that FI number just gives me permission to do more things without expecting anything in return. So like my core values are transparency and generosity, and the closer I get to fire, you know, my version of FI, the more I can give to others without expecting something in return, which is like, again, I love the feeling of helping people. And as I’ve, as I’ve realized, like the more that that you help people like first of all, you’re aligning with your core values, but it also it accelerates your upside even financially, which is kind of the irony of all this stuff is I’ll probably be financially independent and still be able to save, you know, $100,000 a year at that point.
Mindy:
But I like your redefinition of fire because recreational employment, I think there’s a lot of people who think that it would be really great to be retired, but in fact, just don’t like their current job. I hear from a lot of people as I’m sure you do, oh, well, I would never want to do that because I don’t, I like to work. Okay, great. Have you ever gotten a new boss at that job that you used to like to work at? And then all of a sudden you’re like, hmm, maybe that fire thing sounds great. So I love this recreational employment.
Cody:
I’ve served about 150 households to and through early retirement at this point. You know, you see the books with like the hammock on the beach. Everybody has, even the marketing in the financial advisor space is like, you know, like to, you know, like a married couple walking down the beach. You do that for like a few hours and you’re like, okay, now I gotta do something with my life, right? So like, it’s okay if you’re gonna sit in a hammock, lay on a hammock for 40 years, but most people who retire early, they still want to use their skills, their network. And I guess the biggest part is they still want to help others, but they want to help others in their own capacity and their own, again, with their own command over their, their time, energy and their financial resources.
Scott:
All right, when we’re back from this final break, we’re going to talk all about Cody’s hot takes on FI portfolios and how you could simplify yours.
(Music)
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(Music)
Scott:
Thanks for sticking with us. Cody, if I handed you the $1.25 million FI portfolio that you’re looking for in cash, what would the future state portfolio look like? I know that the current state is all broad based index funds. What would the future state look different? Would you, would you diversify or how does that work, especially in the context of recreational employment where you might earn additional income?
Cody:
Yeah, that’s a really good point. So I have a very simple framework that kind of aligns with even after I do all the analysis, I’m like, hey, it’s about the same, is I say, how much money do I plan to distribute from my portfolio over the next seven years? And that’s how much from a risk capacity standpoint that I put in fixed income. Since I don’t expect to take any money out of my portfolio over the next seven years, I’m 100% equity. You know, that’s my risk capacity and also my risk tolerance because definitely highly educated in this space, but also I’ve kind of overcome those emotional behavioral aspects of risk tolerance. My risk tolerance and risk capacity are pretty well aligned that I feel comfortable being 100% equity, which is globally diversified, you know, between, you know, US and foreign, you know, international, you know, total stock market.
Mindy:
Can you clarify what fixed income means?
Cody:
So fixed income to me is cash and bonds. We could definitely, you know, dive into the portfolio part of this. Um, I really think of three parts of, you know, developing your portfolio, which is the three dimensions of risk need, risk capacity and risk tolerance. We can certainly jump into that. But I would say that if I were to use bonds in my own allocation, it would either be, it maybe actually be a combination of using like a total bond, you know, like for example, like not advice for you personally, but like BND, like total bond index ETF. I would also build like a small bond ladder. So I’d specifically use a bond ladder ETF. iShares iBonds is a product out there and also Invesco BulletShares, you know, again, I don’t sell these things, but those are two products that I really like the idea of the asset liability matching of saying, hey, how much money do I think I need over the next three to five years and how can I set up a portfolio where that money will mature and redeem as cash within my account in the years that I need that money? So I would actually do kind of a combination of a total return approach with, really, like the three fund portfolio of like VTI, VXUS and BND, but maybe have like, maybe three to five years not in cash, you know, not just like in a checking account, but three to five years in like a bond ladder ETF. So I know a lot of people say, you know, the the bucket approach is, you know, losing out because you have all this money in cash. Like my cash is still earning, you know, four to five percent in these bond lighter ETFs. So in terms of, you know, really net as long as I, you know, stay invested, hold those to maturity, you know, I’m, I’m like locking in a net yield of about 4 to 5%.
Scott:
And you’re going to earn a lot more than that if you’re going to be recreationally employed and starting three businesses every five years. Portfolio theory does not really account for the entrepreneurial itch that a huge portion of the FI community has. I regularly poll the Bigger Pockets Money YouTube community to get data because I’m just curious. I’m just, I’m just fascinated about this. A third of the people watching or listening to this show already own a business. Uh, a little over a third, 35% definitely intend to start a business after they retire early. Another 38% are, perhaps, I might consider starting a business. And only a quarter, 27% say, definitely not, I will definitely not start a business. And portfolio theory, as we discuss it in the FI community and as we discussed it in a recent episode, which is I, I thought was awesome with Frank Vasquez, discusses, you know, how to have a portfolio in isolation, distribute in perpetuity in a, in a very safe way at the highest possible levels. But at least with our audience, with the BiggerPockets Money community, this is a very, it was very rare for folks to really actually assume no distributions following that. And I, I’m, I’m still grappling with what that means from a portfolio theory perspective. I do think in practice, one thing it means is these people hold way more cash. I hold way more cash than what most traditional portfolio theory calls for. But there’s so much more beyond that that I I I think it’s just an open book in terms of that. But I would be curious to see what a mind like yours has has has to say on the subject because you’ve obviously spent a lot of time thinking about this.
Cody:
Yeah, it’s funny being an entrepreneur changes the average advice. Like, for example, I haven’t contributed to a 401(k) in the last three years, right? As somebody who talks about in the order of operations, like I haven’t contributed to a 401(k), because guess what? I really value, it’s not less about short-term stability, it’s more about the flexibility. Maybe we could talk about like, you know, like the entrepreneurial middle class trap is when as an entrepreneur, you’re still in saving and investing like an employee. Like that is definitely like a trap you can get yourself into. So for me, my kind of back on the napkin is I wanted to build up $250,000 of taxable brokerage, so after tax investments, before I start prioritizing, you know, the tax optimization and the, the traditional 401(k) and all those things. So, you know, as an entrepreneur, it’s, it’s actually, it’s funny too, it’s not just about the money that it takes to launch a new business, but it gives me permission to launch it without having to feel like I have to succeed within three to six months. Because the average employee is kind of expecting, you know, income loss for three to six months kind of, you know, Dave Ramsey style, whereas an entrepreneur, I should expect, you know, like one to two years of runway. The thing is going into, you know, beggars can’t be choosers. Like I don’t want to launch a business that has to be successful within six months. I want to launch a business that gives me the ability to slow down and be intentional over like one to two years to really build what I wanted to build. Because again, if you go in with needing, you know, like as a financial planner, if if every prospective client has to become a client for me to be financially secure, I’m not going to be a good financial planner. I’m going to be rushing the advice. I’m going to be rushing the, you know, the qualitative, the deeper conversations. So, yeah, being an entrepreneur is very different on the path to FI.
Mindy:
Okay, hold on. You just said you haven’t contributed to your 401(k) in three years, that you want to build up $250,000 in your after-tax brokerage. It sounded like before you continue to contribute to a 401(k). Why are you doing this instead of reducing your taxable income? Because you do have a sizable amount of income, I’m pointing to my screen that you can’t see. You do have a sizable amount of income and reducing that taxable income by, what is the contribution? $23,000 this year, you’re not over 50, so you can’t grab that other six, but if you are self-employed with no additional full-time employees, you could do the, the self-directed solo 401(k), which I can’t remember the limits. 58 or $64,000 could go into your 401(k). That’s a lot less in taxes that you would be paying.
Scott:
I know. Can I, can I try to, can I try to answer Cody and see if I get the answer right?
Mindy:
Let’s go, Scott.
Scott:
The reason he does not contribute to his 401(k) is because this man started a business, uh, a few years ago that has quadrupled or quintupled in revenue and in profit, uh, over that same time period. And it would be absolutely silly and foolish to attempt to get a 10% return even if it is tax advantaged in a 401(k) in that same time horizon. And the additional liquidity and optionality that the after tax brokerage account will give him and he can feel uh, in real time, will far outweigh the long-term benefits of a few years of tax advantage contributions. I am also sure that Cody will soon begin resuming those contributions to his tax advantage retirement accounts, but that will be because he has so much more income because of the excellent investment he has made in his businesses that he can afford to both fund his entire ladder of tax advantaged retirement account contributions and still continue to generate spendable liquidity today. How am I doing Cody? Is that is that close?
Mindy:
Before we allow Cody to answer the question that I asked Cody… [Scott and Mindy laugh] …you’re still putting money into the after tax brokerage account. So you’re not getting the tax advantage, but then you have more access to it. I would assume that since everything is in index funds, you would be investing in the same way in the 401(k) or in the after tax. So I’m just asking the question that I hear people screaming at their radio right now. Why is he not getting the tax deduction?
Cody:
Scott, I’ll give you a B plus. The first part is actually the part that doesn’t apply. I do not think not investing into a 401(k) is getting greater returns by not investing, because you can see that I’m still investing that money in a different account type. But the second part is where you absolutely nailed it that I want the flexibility and the optionality that if I do want to access to those funds, I don’t have to do one of the specialized, again, I, you know, I definitely know all the, you know, 72(t) and Roth conversion ladders and all that, you know, all that fun stuff. I want to be able to do some tax gain, tax loss harvesting with easy flexibility and optionality. So yeah, I’m still investing that money in the low-cost index funds, only earning quote unquote, you know, 10% annualized. Again, it’s the, it’s the future uncertainty of, first of all, professionally what will bring, and also personally. One thing I haven’t mentioned here, my wife and I are planning to adopt a child, uh, you know, infant adoption within the next year or two. And that’s a big part of it too, is professionally, I want that flexibility to, you know, build, fund businesses, but I also want the liquidity and flexibility to say there’s a lot of uncertainty that comes with adoption, right, including whether it’s medically, adoption for us costs $55,000, right? So just really thinking, hey, there’s a lot of really short-term to intermediate term and by by that I mean like kind of five to 10 year money that we don’t quite want to commit to, you know, our 50s and beyond.
Scott:
Thank you for the generous B plus grade here. I have the same framework for a like 23 year old, for example, just getting started in life, making a median or maybe around that median income level. And the idea is, I’m not against retirement accounts and I max my retirement accounts now here at 34. But to get started on the journey of compounding wealth, that liquidity, you’re so much more dangerous in a good way if you’re relatively young, relatively entrepreneurial, relatively flexible, and this money is in cash and not in your mind locked away in the 401(k) for a couple of reasons. One, a house hack, for example, is so powerful for that person. There’s no possible way that the benefits of a 401(k) in almost any situation you can really conceive of is going to beat out a well thought out, disciplined house hack that involves that sacrifice from that person. And then if you know, you take that next, another year or two and you still defer those retirement account contributions and you build up 30, 40, $50,000. I mean, this person’s going to be very dangerous in the sense that they’re going to be able to take a, a sales commission job for example, that might have a lower base salary but way more upside or they’re going to be able to buy a business or take a year and start that business idea if their expenses are low. That optionality and flexibility, even if it’s not actually, doesn’t actually translate in a a way that’s specific to one of those examples, that flexibility I think will benefit that person so greatly that it will overwhelm the delay of the retirement account investing for three or four years. This only applies to the very aggressive cadre of people in the personal finance world. This does not apply to the more moderate folks who would absolutely benefit from just getting those contributions earlier and letting that compounding go to work. But that’s the trade off. People in some situation, you can’t max out all of the order of operations financial stack and have liquidity to do entrepreneurial things which can generate way better returns. And so there’s a sacrifice and tradeoff and I think some people should make them and it sounds like you are.
Cody:
Yeah, and by the way, I’m still, I’m still maxing, we’re still maxing out our HSA, right, our Roth IRAs, and you know, just those two combined, you know, that’s, that’s, you know, 20-plus thousand into those kind of more traditional, like parts of the order of operations. But one thing I want to touch on real fast is the difference between liquidity and stability. So you do talk about having cash available. I will say that I think once you build up a certain level of taxable brokerage investments, you know, assuming you’re not actually going to spend all planning to spend all of it, right, within, you know, the next like one to three years, I don’t have stability in my taxable brokerage account because it’s invested in equity, but I do have liquidity, like I have quick access to be able to sell those securities and convert, you know, again kind of turn assets into income, you know, assets into cash flow. So, uh, I kind of think about liquidity and stability as being like kind of two, you know, two sides of the same coin.
Scott:
Let me go back a few minutes and, and you, you kind of answered the first part of it, but if I handed you that $1.25 million in cash for your FI portfolio, what would that portfolio look like specifically these days?
Cody:
So the 1.5, are you saying like in continuing as an entrepreneur?
Scott:
Yes, sorry, specifically in the context of retiring as an entrepreneur, would you still hold the bond funds? Would you still hold the other, other items? Would you get more conservative in some cases? How do you think about it?
Cody:
Again, going back to that framework, you know, any money I’m planning to spend within seven years out of my portfolio would be in fixed income. You know, if I were four years in the future at 1.25 million FI number, I would still be 100% equity, uh, just either, you know, one to two funds. It would be VT or a combination of VTI and VXUS. So that’s just global stock market index. I wouldn’t have like a, you know, a Humpty Dumpty portfolio of like growth, value, mid, small, uh, you know, I would just have like the one egg rather than the Humpty Dumpty version of that model portfolio.
Scott:
Okay. How about if I doubled it to two and a half million? Which is at the midpoint.
Cody:
Same thing. Yeah, nothing would change.
Scott:
How about 5 million?
Cody:
Nothing would change.
Mindy:
Is there a point where it would change?
Cody:
I would say the total portfolio allocation would not change, but my asset location considerations would definitely be in play. So if I were just owning US and international equity, I would want the international equities right, in the tax deferred vehicles, and I’d want the, the US equity in the, in the, the taxable brokerage account, assuming I had space in both of them to get that, you know, that global allocation. So, yeah, so most likely, if I had that global allocation, like my US equity would fill up the taxable brokerage and my international equity would be in the, you know, the Roth IRA, the the future traditional 401(k) and things like that. But yeah, the total allocation wouldn’t change evil, you know, 20, uh, 10, $20 million.
Mindy:
And why would you put the international in the Roth and the US in the other?
Cody:
So it’s two reasons. So international equity, in terms of dividends, the dividend yield is much higher than US equity. Uh, I don’t have the numbers right in front of me, but I’m guessing at least double, the dividend yield. And also, there’s a larger percentage of those dividends that are non-qualified, which would be taxed at ordinary income tax rates rather than the favorable long-term capital gains tax rates.
Scott:
You’re very clear on these two funds, VT and VXUS, uh, for entertainment purposes, only, of course. What is your thought process on some of the other portfolios that are coming out? Like some of the work that Paul Merriman puts out, or the the golden ratio portfolio, for example, that we talked about with Frank Vasquez. When and where would you shift away from just those two funds that you’ve been emphasized here into something else?
Cody:
So the only shift I would make is adding fixed income, again talking about kind of like that, you know, there is the constant duration bond funds like BND, you know, that’s the total bond market ETF. Also those bond ladder funds. I guess the reason that I wouldn’t start, again, maybe a mean way to say like the Humpty Dumpty version of that where you split it into all these different things and maybe go more into small cap value, is really that’s like optimizing like the top 5 to 10%, right? Like I, I really value, I call it return on hassle, ROH, and also this idea of what I call the headspace premium. I tell a lot of retirees and they want, they want this too. Mandy, Mindy likes that headspace premium.
Mindy:
Yes, I do.
Cody:
Most retirees want to become more passive with their investments and more active with their lifestyle. The thing is the more complexity I’ve learned, the more I value simplicity. So I know that Frank has talked about, you know, like make it simple but not too simple, right? Like that’s kind of my version effectively at this point. And moving into retirement, my simple but not too simple would be VTI, VXUS and then a combination of a total bond fund and like a bond ladder, which again is kind of just like four, four little things hybrid together.
Scott:
What are cases in which you’ve deviated from this in your practice with the families that you work with?
Cody:
Keep in mind that I work specifically with DIY investors on the path of early retirement. So most of them are listening to Frank’s podcast, which is, by the way, amazing. I love it. Risk Parity radio. Um, a lot of them are coming saying, hey, I’ve listened to, you know, Paul Merriman or, uh, I read, you know, I’m in the Bogleheads forums. So a lot of them come to me with their bias. I would just say this, they all have a bias toward optimization. All these things we’re talking about are ways to optimize. They aren’t like the fundamental, kind of, if you think core and explore, like there’s core and then there’s exploring on the top 10, five to 10%, like everybody kind of has the same core, which is like, hey, like let’s say, you know, in retirement, you know, let’s say like 50 to 80% equity, rest is fixed income. But then we explore in terms of like, okay, well which products do we actually put all those things into? And I would say people come to me with a bias typically toward how they want to explore, but they all have the same core philosophy. So Frank and I can certainly talk about, you know, the correlation between pretty much all US equity is very highly positively correlated to each other, whether it’s like large, mid, small cap. Again, international and US has been pretty highly correlated to each other. When you in terms of diversification, you’re looking at negatively correlated assets. The only really negatively correlated asset I’m looking at are treasury bonds, right? Looking at different durations and I would say we probably have the same overall fundamental philosophy, but we like to tweak in the top 5 to 10% of optimization based on again, going back to that risk need, risk capacity and risk tolerance.
Scott:
I mean, there’s a million questions to ask about portfolio theory. I guess the one that I’ll bring to the surface is, it seems like lately, uh, in a lot of circles, the concept of small cap US value stocks as a component, half of for example, the equity position for the US allocation in a portfolio and then half growth, for example, instead of a broad-based market index fund is becoming more popular. I actually saw a recent article, I think big ERN did kind of refuting this with where he he thought that that was not true or there was, you know, in the recent times it had been less effective. But is that becoming a more, a question that you’re increasingly getting or or or noodling on when you think about portfolio construction?
Cody:
So I think we need to break out, there’s really two people in the FI community. There’s those with a high risk capacity and a high risk tolerance. And those are kind of like the logical thinkers. I’ll actually share here briefly. So risk need, by the way, is the level of portfolio growth required to achieve your financial objectives. So basically saying, hey, if if my whole portfolio were in cash, would that be okay? And by the way, what’s kind of ironic is a lot of people retiring in the FIRE community, they could put all their money in a checking account and probably still be fine because they under spend and under give. But the risk capacity part, another objective measure is the amount of potential portfolio loss that you can sustain without jeopardizing your ability to maintain your financial objectives. So that’s saying, hey, if I did go 100% equity and it dropped by 50% would I still be okay? Right? And again, a lot of people in the fire community, they have a high risk capacity, but here’s the part that where those, you know, the small cap value and all that comes in, risk tolerance. This is a subjective measure, the emotional and behavioral willingness to endure market volatility and portfolio losses. And Scott, what you mentioned there, the people who are really into the small cap value, they have a high risk capacity and a high risk tolerance. They’re very logical. They’re like, how can I increase my risk adjusted return? And they’re mostly looking at upside rather than protecting downside. Because as you know, if you’re doing a small cap value tilt, like you got to be on that roller coaster for a long time for it really for it to pay off. Like that’s not something that you just put it in there for five years. Again, Frank would say the same thing. Like if you’re going to choose small cap value and only be in there for two to five years, like don’t, it’s like that’s a long-term play. But then there’s the the high risk capacity but low risk tolerance. By the way, that’s most of the FIC community. Like that is most of what I see is and those are the people going into like the time segmentation, the bucketing, you know we talk about morning star’s research, Christine Benz, the 4% rule. They have the ability to be 100% equity most of the time, but they have such a low risk tolerance and a fear of spending and of course a fear of volatility. They have the scarcity mindset. Their grandparents, you know, went through the great depression and taught their parents, you know, to keep everything you have because you never know when you’re going to need it. So I think that maybe we could break down high risk capacity, high risk tolerance investors versus high risk capacity, low risk tolerance investors because those are the two people in this community that have a very different approach to investing.
Scott:
Who’s going to be richest over the next 10 years?
Cody:
Well, definitely the high risk capacity, high risk tolerance people from a logical perspective, but at the same time, what’s really funny is that they have a confidence in their ability to adjust, but both of these parties, high risk tolerance and low risk tolerance, it’s funny, they they focus on education with a confirmation bias on what they already believe. So the people with a high risk tolerance, they just get more educated about how to increase returns, and then the low risk tolerance people get, they love when it they talk about, oh, the 4% rule becomes a 3% rule. They act scared, but they’re actually inside, they’re actually really excited because they’re like, oh good, I can be more safe. I can be even more conservative with my portfolio and stack, I’m going to assume no social security. You can tell I’m getting really excited about this because there’s a lot of missing pieces in these conversations. I think the logical thinkers are going to be best off financially, but the less off in terms of, I guess maybe both parties will be less off in terms of really missing out on a lot of life because they’re so focused on the numbers and they kind of put all the physical, mental, spiritual, relational health on the back burner because they’re so focused on either upside or protecting downside and they kind of lose the forest for the trees.
Scott:
I think the guy that’s going to be best off here is the one who retires with a portfolio they’re comfortable with either way, and then spends all of their time as passionately discussing the business that they’re doing as you do Cody and has the liquidity, of course, to invest in that, uh, to some degree as as opportunities arise and make sure that there’s time share for that.
Cody:
The best investor doesn’t spend money, right?
Scott:
73% of our community is going to is going to do that or at least consider it once they FI. I’m sure you’re already seeing that as an entrepreneur with the tax advantages that accrue the ability to drive revenue and actually take control of that from an income stream. And I can’t wait to see how that’s going to turbocharge for you in the next couple of years.
Cody:
And I also want to just quickly add that I’m an entrepreneur, but out of the 150 people that I’ve helped retire early, over 90% of them were employees their whole life, their whole career, right? So like I, I love speaking kind of to this two sides and those, the ones who have been saving and investing for decades, you know, as employees, when they retire, they’re the ones that typically go into the high risk capacity, low risk tolerance because entrepreneurs naturally have a higher risk tolerance. So that’s where we get into the heavy cash positions, the, I’ve got CDs in five different banks to make sure I hit all the FDIC limits. They would actually benefit from using annuities, but they’re very anti-fees and anti-flexibility. So they just end up in this place of having all this cash in their bank account and, you know, not wanting to hire an advisor, which by the way, those are the big fish the advisors are chasing after. So there’s definitely like that realistic tension of like, hey, I’m the person who needs the most help spending and giving, but yet the advisors who want to work with me have an incentive for me to under spend and under give based on how they manage my portfolio. It’s a very hard part of this industry is working with those people who have the money to live their big juicy life but have a scarcity that’s going to be backed up by how they’re paying their advisor, which I know I’ll probably get a lot of hate mail on that, on that little chat right there. But there’s a, there’s a lot of conflict in our, in our industry that’s thankfully slowly changing.
Scott:
I think that the folks that really highly defend the, you know, AUM financial planners or the financial planners that sell various products and generate commissions, they don’t listen to Bigger Pockets Money. We’ve had plenty of uh, ragging on those types over the years.
Cody:
The anti-advisor community is here in this podcast and the advisors are listening to other podcasts that are focused on the things they care about. I guess, definitely.
Scott:
I guess that’s a great question to wrap up on. Could you give us a brief overview of the financial planning industry that is a little bit more in depth than what I my like off the cuff remark there and what it’s specifically you feel are the channels that people should be looking for when they’re looking for a CFP? How much should one plan to spend on financial planning if they’re avoiding the assets on the AUM types or the commission types?
Cody:
The two parts of this are which services do you actually want? And only pay for those services, right? So if you, if you want financial planning, you shouldn’t be paying for investment management. If you only want investment management, I’ll try to convince you that you need financial planning. But that’s a big part is only pay for the services you actually need and are provided. The second part is if you want financial planning, there’s only really three options, right? Do you want to work on an hourly basis where you’re just saying like as needed, I just, you know, I, I reach out like, you know, Nectarine is a, you know, I’m not affiliated with any of these companies, but hellonectarine.com, you can hire, you know, an advisor, literally just one hour at a time, right? Just to kind of as needed. Uh, others say, hey, we’ll do like 10 hours together as like a package. So there’s hourly, there’s project based, which is, hey, we’re going to have a two to three month engagement to do a comprehensive financial plan. We’re going to look at everything in your life with the number on it, right? We’re going to give you like kind of a, what I call the measurable action plan, the map of, you know, what are the things we’re going to do over this next year to optimize your financial plan. Then there’s ongoing. These are the people who are saying, hey, I want somebody who, like, it’s going to keep me accountable, not just for saving and investing, but keep me accountable in retirement to actually say, hey, you said you want to go on that big trip, did you actually, you know, did you actually go on to, you know, Airbnb and book the nice cabin and all those things. So if you need accountability, ongoing monthly is great. Like Abundo Wealth is a great firm that does that. It’s like just a few hundred bucks a month for ongoing support. Project based for a comprehensive financial plan, you should expect to spend between $2500 and $5,000 for that kind of that full comprehensive two to three month engagement. And then hourly, you should expect to spend between $250 to $450 an hour depending on their, their level of expertise and experience.
Scott:
Super helpful.
Cody:
Yeah, and I just want to say here, even though I’m a, I’m a certified financial planner professional, a CFP professional, I am not your financial advisor. So the content I provide today does not provide financial tax legal or any professional advice, right? So do not act on any of the information, the tickers that I talked about, those are not advice for you, just the things that I would do personally based on my own situation. Uh, and certainly consult with a licensed investment tax or legal professional before implementing anything that you heard today.
Mindy:
Awesome. Cody, thank you for the disclaimer and thank you for your time today. This was very enlightening. Where can people find you online?
Cody:
My biggest excitement right now is uh, Measure Twice Money YouTube channel. You can actually watch real financial planning meetings with real retirees struggling with what we talked about today. By the way, I might even send one your way that you can interview a real retiree who retired last year and what the emotional behavioral elements of scarcity. Um, and also, if you go to measuretwicemoney.com/book, you can sign up for just a simple email whenever that tax planning to and through a late early retirement book is coming out uh, in September, uh, later this year.
Mindy:
Awesome. Cody, thank you so much for your time today, and we’ll talk to you soon.
Cody:
Absolutely. Take care you guys.
Mindy:
All right, Scott, that was Cody Garrett and that was a lot of fun. What did you think of the episode?
Scott:
I thought it was great. I I I love the passion for personal finance and the shift to aligning his career with that passion and that allows him to pursue FIRE faster. So I think it’s great. I think we need a lot more of these, you know, advice-only financial planning folks in the industry and I think it’s great and we’re starting to see those pop up more and more and more with um, HelloNectarine and and Cody’s firm and and and more like it. So I think it’s great and it was fascinating to hear that story shared from him.
Mindy:
I love his new definition of FIRE: financial independence recreational employment. I think that is a great mindset to be in. Hey, I could be retired, but I don’t want to be. I like my job. I’m going to continue. I am declaring myself FIRE, Scott, financial independence recreational employment.
Scott:
Me too.
Mindy:
Perfect. All right, should we get out of here?
Scott:
Let’s do it.
Mindy:
That wraps up this episode of the BiggerPockets Money podcast. He is Scott Trench, I am Mindy Jensen saying, t-rex…
(Music)
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Mindy:
Sore dinosaur.
