July 13, 2025 • 41 mins
Bogleheads favorite Jon Luskin, CFP® drops in for a masterclass on keeping money moves “so dull they sparkle.” He specializes in providing hourly advice to do-it-yourself investors and is a long-time advocate of simple, low-cost investing. In this episode he shares with us:
- Why every late-starter’s to-do list should begin with an emergency fund and Social Security game plan before touching their asset mix
- How low fees—not “sexy” alts—make numbers grow
- His soup-to-nuts review (including insurance gaps, estate docs and Investor Policy Statement)
- How simplicity wins
This is the first part of a 2 part episode. Part 2 will be released on 7/20/25.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:01):
Before we get into today's show,we're going to listen to a great speak
pipe, a voice message from Jennifer.
Yeah.
Jennifer sends us somethingabout the episode 1 51, with
Cari Carbonaro regarding Womenand the Great Wealth Transfer.
Let's take a listen.
(01:03):
What a great message, Jennifer.
Thank you.
And we want to hear from you.
Leave us a voicemail on SpeakPipethat's always in a show notes.
And we'd also love for you to leaveus a five star review on Apple
or wherever you get your podcast.
I.
Yeah, we love hearing from youand let's get on with the show.
I.
The philosophy doesn't change justbecause you have more money doesn't mean
(01:27):
you have to be more complicated, right?.
Yeah, certainly.
And to be a real nerd aboutit, investing is frankly just
about making the numbers bigger.
So if you wanna make your numbersbigger, then you want to take
out a smaller number from thatbigger number in the form of cost.
So you always want your cost to be low.
I mean, that's what you should leadwith when it comes to investing success
and not the sexiness of the investment.
(01:50):
Again, alts, private equity, et cetera.
So if you're leading with howsexy your investment is you're
probably off to a bad start.
it's really hard to be boringand as Alan Roth says dare to be
dull, it's really hard to be dull.
Set the tone with regards to alts andeverybody sort of followed into that
(02:10):
and fell into the alt trap as you couldpotentially call it where we're seeing
sort of a payback or a squeeze these days.
It's really hard to be simple.
It's hard to stay that coursebecause look what my friend's doing.
It's all this comparison is thethief of joy and we don't need
to compare ourselves to others.
There are very simple portfolios likeyou advocate in your plans that are
(02:31):
applicable to really most people.
we have to talk about your emergencyfund before we talk about your
investment portfolio, because youremergency fund does impact how we're
gonna design your investment portfolio.
Same thing for yoursocial security strategy.
That's gonna impact how youdesign your investment portfolio.
Same thing for how wellfunded you are for retirement.
(02:52):
That's gonna impact how youdesign your investment portfolio.
A lot of folks just want to jump rightinto investing and it often doesn't
make sense to do so 'cause there's otherthings we need to know that's gonna help
us better answer the investing question.
We look at those othertopic areas as well.
(03:37):
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(03:59):
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(04:23):
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Biden.
News magazine.
I think he's actually youngerthan both of us, Bill.
John has been featured in consumerfacing and advisor facing publications,
including the New York Times.
(05:09):
The Wall Street Journal MichaelKit's blog, Nerd's Eye view.
In 2019, John and his wife Lean,dedicated one full year to travel.
So he's doing more thanjust financial planning.
the two started their venture by takingfour months to convert a cargo van, this
is so cool, into their home on wheels.
(05:32):
They then spent several months traversingthe Western United States and Mexico.
Lean, documented their adventureon her blog, and we will
include that in the show notes.
So John serves on the board of theJohn C. Bogle Center for Financial
Literacy, which we all love.
It is a nonprofit and theydedicated to helping people
make better financial decisions.
(05:54):
But not only that, in the past, John hasprovided pro bono financial planning to
low income household with the financialplanning association's pro bono program.
And he's also done work withthe San Diego Financial Literacy
Center, which is also a 50C3.
He has also volunteered with SecondChance Dog Rescue, four Paws Dog
(06:17):
Rescue fostering rescue dogs andas a league cycling instructor.
He's also been a part of TheLeague of American Bicyclist.
John has taught safe cyclingtechniques to youth and adults in the
San Diego County Bicycle Coalition.
So I love someone that's doingmore than just his career.
(06:37):
So shout out to John.
Thank you John.
And John, welcome Fi.
Thank you.
I appreciate it.
Surreal.
I hear that whole bio read.
It's funny, I think about some of thoseprojects that I used to do that are long
gone now that I've got a couple young kidsI don't do too much of that stuff anymore.
Yeah, I wanted to be sure to name itbecause we are more than our career and
I feel like it just says a lot aboutyou as a person, some of the things
(07:02):
that you do outside of your daily grind.
So I was very impressed with allthese things that you did beyond
financial planning, right, Bill?
Well, he gives back in so many ways andtoday he's giving back to our audience
of late starters by educating us.
But in order to understandJohn, he's not just his bio.
There's gotta be this little kidinside of the big kid John, and
there's gotta be some formative yearsthat led him to be the force and
(07:23):
financial planning that he is today.
John, take us back to your youth.
What were the personal and financialthings that happened in your life
that led you to where you are today?
Gosh.
Wow.
I, guess I'd have haveto think about that one.
I know when I was in high school wasinvolved in a, a youth organization.
(07:44):
I really wanted to be involved init when I first learned about it.
There wasn't a chapter in my area.
So I set one up.
That was fun being present, a littlechapter of kids doing all sorts of
extracurricular and volunteer activitiesgiving back to the community, etcetera.
Always been a big fan of low costinvesting, 'cause that certainly
is the right way to do it.
There's other ways to doit, but it's probably gonna
(08:04):
lead to the worst results.
So, going back to the investing piecesmart investors are always gonna
focus on keeping your costs low.
Yeah, but, so when you were a little guy,were you an investor as a young kid, did
your parents bring this about to you?
Where did your interestin money take hold?
I know that that wasn't the case forme, I didn't get any education in it.
Did you have a curious path or wasthis always a passion of yours?
(08:26):
Certainly wasn't always a passion, justgoing back to that altruistic streak.
I, started my career inthe nonprofit sector.
Again, just wanted to do the right thing.
Didn't really love the nonprofit sector.
And then in studying for thatindustry, doing my master's thesis,
I decided to pivot to personal,or rather to investing in finance.
So I looked at how endowments investand that's where my thesis was born.
(08:49):
And that's when I learned allabout, hey, index funds are
investors best bet for success.
Even if you're an endowment, auniversity endowment with a billion
dollars, you can have all sorts ofreally sexy things in your portfolio,
like private equity and hedge funds andall sorts of really attractive alts.
But that doesn't matter'cause fees are what matter.
And again, that's where Ilearned that keeping costs
(09:11):
low is an investor's best bet.
So , that's the course to get into
Your thesis is interesting tome because it's apropos today.
The government's made some policychanges that have really pinched some
of our leading financial educationalinstitutions because they have so much
allocated to alternative investmentsthat have an illiquidity problem.
Are we coming back to this where theythought this would always be there?
(09:34):
The government will always have ourbacks, but hey, lo, and behold they don't.
And are we finding ourselves overallocated to alternative assets
and higher education leadingto this illiquidity crunch?
Yeah, I'd say this isn't a new problem.
I mean, this is a problem going back asearly as the financial crisis, looking
at how the endowments dealt with that.
At that time they had a lot of liquidassets numbers were down and they weren't
(09:58):
able to sell those assets It was abig problem for endowments back then.
Different institutions aredoing different things in terms
of, doing more alts or less.
But man, the problem of alts still remain.
There's still almost certainlynot the right investing solution
for practically everyone.
Well, it's interesting too thatthe same principles that hold true
(10:18):
for the DIY investor, little oldme, can hold true and should hold
true to our largest institutions.
The philosophy doesn't change justbecause you have more money doesn't mean
you have to be more complicated, right?.
Yeah, certainly.
And to be a real nerd aboutit, investing is frankly just
about making the numbers bigger.
So if you wanna make your numbersbigger, then you want to take
(10:40):
out a smaller number from thatbigger number in the form of cost.
So you always want your cost to be low.
I mean, that's what you should leadwith when it comes to investing success
and not the sexiness of the investment.
Again, alts, private equity, et cetera.
So if you're leading with howsexy your investment is you're
probably off to a bad start.
I know a lot of these big endowmentsthey pay to have their assets
(11:03):
professionally managed, right?
And that of course add to the fees.
Do you work with any endowments?
These are billions of dollarsthat could be managed.
Now we know as little do-it-yourselfers.
Yeah.
Passive index works.
Indexing works.
But, even if you add somezeros, it's the same thing.
Do you work with any of these?
Because I think they think they'redoing the right thing, but...
(11:24):
yeah, it's difficult to commenton whether they think they're
doing the right thing or not.
I mean, if you reallywant to geek out on it.
There is some career risk involved ifyou were to be managing an endowment
portfolio and say, hey, let's go with allindex funds, because at that point, what
are you paying the manager for if they'retelling you just to invest index funds.
And then if all the other endowments arealso doing alts you don't necessarily
(11:46):
want to be the one outlier saying,Hey, let's do something different.
There's also conflicts of interest.
The hedge fund manager is onthe board of the endowment.
He makes a contribution to the school.
And then the school invests in his fund.
So, there's some non-investmentreturn focused reasons.
Why these institutions may beinvesting in anything but index funds.
(12:07):
There are a handful of some smallinstitutions that I do advise
with insofar as how to invest.
And of course it's always gonna be, Hey,let's use ultra low funds to invest.
That is your best betfor investment success..
Yeah, and for the boards that I serveon, usually I will be on the investment
committee or something like that.
And I'm definitely always advocatingfor simple index funds and giving
them obviously research andthings to sort of back it up.
(12:30):
But we will include that in theshow notes because it's fascinating
what you did your thesis on.
To me, it's a very relatable thingthat possibly could help out endowments
and some of the other I guessorganizations that you talk about.
So kudos for that.
it's really hard to be boringand as Alan Roth says dare to be
dull, it's really hard to be dull.
(12:50):
Set the tone with regards to alts andeverybody sort of followed into that
and fell into the alt trap as you couldpotentially call it where we're seeing
sort of a payback or a squeeze these days.
It's really hard to be simple.
It's hard to stay that coursebecause look what my friend's doing.
It's all this comparison is thethief of joy and we don't need
to compare ourselves to others.
(13:11):
There are very simple portfolios likeyou advocate in your plans that are
applicable to really most people.
Yeah, I think most people either read thewrong parts of Swenson's book or read the
parts where he said, Hey, don't do this.
And then blacked out and then decidedto go into alts and everything else.
If you read Swenson's book, Swenson theguy who ushered in the popularity of alts
(13:33):
into endowments he talks a lot about thedifficulty and the process you have to go
through to be successful in these areas.
I think a lot of folks miss that'cause that's the boring part, right?
Instead it's all about, hey, I can bragabout that hedge fund that I'm invested
in cause it certainly sounds cool.
Well, before we dive into what doesa comprehensive financial plan and an
(13:54):
investor policy statement look like,i've got to hear about this year of
alternative or alt living that you didwhere you rehabbed a van on your own with
your wife and toured around the country.
Are you a house hater because youwrote a blog post- don't buy a
house, take a sabbatical instead.
People don't do this.
(14:14):
What drove you to be a house hater?
A van lover living the van life.
I think he's setting a trap.
He's setting a trap, John.
I wouldn't really say I'm a househater so much as I don't think folks
are thoughtful enough about thepros and cons of home ownership.
When we went on our little adventure,we sold our home and that funded our
(14:35):
sabbatical and also some rental propertyinvestments later down the line.
But that's a whole nother story.
Man, the sabbatical was an adventure.
I wouldn't recommend building a van.
I certainly learned a lot.
I learned all about creating awhole electrical system, solar and
having the vehicle engine charge upthe coach battery, and AC and DC,
(14:57):
and generators and all that stuff.
It was a very challenging project, butgosh, it certainly was a lot of work.
We initially had to do it for one monthfor the build, and it stretched into four.
If you've never done before, what we weredoing, and you want it to be at least,
reasonably comfortable and enjoyable,you're gonna spend a lot of time on it.
Yeah.
And then we traveled forseveral months in the US.
(15:17):
We were planning to domore than just Mexico.
We were planning on doing someCentral America, but COVID hit
right when we had got to the tailend the southern end of Mexico.
And so our travel pretty muchstopped there at that point
'cause of all the shutdowns
this is not something thatpeople think of doing.
Where did you get this wild hair?
This is counter-culturalto what the US is like.
(15:37):
Get your house, your picket fence,grow your kids, stay at your job by
and large, up until recently, for 30or 40 years, and you are leading the
wave on how to think differently.
What helped you think differently abouthousing and adventure early in life, as
opposed to buckling down and becomingthe next 31, 30 2-year-old retiree?
(15:58):
I wouldn't say necessarily didit early, at least relatively.
For us it was our lastbig hurrah before kids.
So, hey, we're gonna havekids before we do it.
Let's do the thing that wecan't do when we do have kids.
So that was the idea behind thetraveling and it worked out pretty well.
So now we got a couple young kids andcan't do really much of anything else
at all right now short of swim classesand taking 'em to birthday parties and
(16:19):
whatever you needed to keep a couplelittle young human beings alive.
So it definitely did work out well 'causewe got to scratch that itch, if you will.
we live that life for sure.
So you got the kids now andyour wife, she documented this.
So it's memorialized for those thatwanna hear about John's adventures about
the van life and all that will includeher blog posts and the show notes.
(16:39):
'cause I found them kind of cool.
Now one other thing in your introI mentioned that you sit on the
board of the Bogle Center nonprofitand there's a really cool thing
that they're doing right now.
Can you just brieflytalk to us about that?
Yeah, so, Johnson u Bogle, centerfor Financial Where they can about
investing uh, at low cost successfullylearn about investing, at low cost
(17:02):
successfully, for themselves.
We have an annual conferencethat we do every year.
I know You guys haveparticipated in the past.
I know we're coming back formore, so I, hope that speaks
to how great the conference is.
Tickets are on sale now.
By the way, boglecenter.netto check that out.
To answer your question, Jackie, recentinitiative we're doing Jonathan Clements
getting savings going initiative.
(17:24):
John Clements is prolificwriter on personal finance.
He's got a new book out that's acompilation of all his best writings and
proceeds are going to help jumpstart theinvesting savings of low income youth.
So it's a special side project thatthe Bogle Center is involved in.
Let's figure out, hey, what happens ifwe give a thousand dollars to low income
(17:46):
earners to put into a Roth IRA to invest?
So little new side project that initiativethat the Bogle Center is involved.
Oh, actually maybe not little,it's a rather big project that
the Bogle Center is involved in.
At the conference everyyear we have two tracks.
We have a retiree track anda track for younger folks.
whether you're saving for retirementor whether you're close to
retirement we've got a track for you.
(18:07):
We've got content for youat the annual conference.
Yeah.
Bill and I are both prettyimpressed with that.
As soon as I heard about it,I immediately made a donation.
Bill made a donation, and sowe definitely wanna support
that for any of our listeners.
The Bogleheads Center provides a tonof financial literacy and education.
Even at the conference, if you can'tmake the conference, they record
(18:27):
all of the talks and offer themcompletely for free on YouTube.
So if you wanna support that, we'llinclude that in the show notes.
One of my favorite charities.
And I do love going to the conference.
Now, did you mention the dateof the conference is in October.
Yeah.
October 17th through 19th this yearSan Antonio Texas at the Hyatt.
And then for folks who didwant to contribute to the
(18:48):
center, boglecenter.net/donate.
And this year Jackie's speaking at it.
So all the more reasons to go and seeyour hostess with the most is talk about
Fi and Fire for a generational change inwhat the Bogleheads were is now no longer
all these older people with gray hair.
There's a bunch of youth andsons and daughters of Bogleheads.
It's having a generational turnover and weinvite you to join us at this conference.
(19:15):
Bogle heads are diehards originally,and one of the things that is pivotal
in a bogleheads life is sort of thiscomprehensive financial review and
ultimately boils down to in the investingpiece and investor policy statement.
Your day job is hourlyadvice for DIY investors.
And you asked the question isone day financial review for you?
(19:36):
I've looked at on your website several ofthese financial reviews and they're quite
comprehensive and they have similaritiesthat run through them with the individual
differences that the people come toyou with questions that they have.
Can you just give us a 10,000 foot viewof what this one day financial review is
and what are the categories of things thatyou like to go through with people to help
(19:57):
them get their financial lives sorted?
what is this globalfinancial review look like?
Because it can be overwhelming.
How do we break this down?
What are the things that you like tolook at when they come to you wanting
this one day review, what are the kind ofthe items that you need to go through in
order to understand their and help them?
I'll answer that question in the orderthat I usually cover it with folks, 'cause
(20:20):
that's what's burned into my memory.
So we look at a lot of topic areas andone thing that I always stress too folks
is that kind of need to do that becausesome topic areas which you might not
even believe impact other topic areas.
That's to say we have to talk aboutyour emergency fund before we talk about
(20:41):
your investment portfolio, because youremergency fund does impact how we're
gonna design your investment portfolio.
Same thing for yoursocial security strategy.
That's gonna impact how youdesign your investment portfolio.
Same thing for how wellfunded you are for retirement.
That's gonna impact how youdesign your investment portfolio.
A lot of folks just want to jump rightinto investing and it often doesn't
(21:03):
make sense to do so 'cause there's otherthings we need to know that's gonna help
us better answer the investing question.
We look at those othertopic areas as well.
So already mentioned and mentioned inthe order that I cover 'em with folks.
Financial basics, that'sgonna be your emergency fund.
And that's gonna be if you're trackingyour spending, how you're tracking
it, and accurate at that or not.
And then social securitywhat your strategy is there.
(21:25):
Then retirement planninghow well funded you are.
From there I looked at insurance coveragefor folks if we still have a while to
go until we're funded for retirement.
And we'll know that because we'llalready have done retirement planning.
At that point.
Then we wanna talk about disabilityinsurance and then if you have dependents
on you that need your income thenlife insurance and then long-term care
insurance as well might be somethingthat can be a fit for someone.
(21:49):
And that'll know the answerto that after we've done the
retirement planning exercise.
That's to say, Hey, if your retirementplan looks really, really good and you've
got more money they can possibly everspend, then at that point we know, hey
we probably don't need care insurance.
then the opposite is the case.
Hey, if your retirement plan islooking pretty shallowly funded, then
long-term care insurance might be aproduct that help mitigate risk for you.
(22:10):
For example, Umbrella Insurance,that's a big thing most folks miss.
And then to round it off, property andcasualty coverage, optimizing our auto
insurance our homeowner's etcetera fromthere tackle estate planning with folks.
And this is a huge thingthat most folks miss.
I'll get folks who wanna talk about bondduration, but then they'll have a kid a
(22:32):
minor child and not have a will, right?
So, hey, let's make surewe do our estate planning.
So the will, it's almost certainly gonnamake sense if you have minor children.
Same thing for a trust.
And then I can't think of a situationwhere someone wouldn't want a
financial power of attorney and anadvanced healthcare directive for
some sort of proxy for healthcare.
Those are formal estate planningdocuments that you work with your estate
(22:53):
attorney to create likely unless youuse an off the shelf offering, which
might be a solution for some folkswho have really simple situations.
And then to round out, we'llhave an emergency letter.
So an emergency letteris an informal resource.
This isn't something weneed an estate planner.
This is gonna be a resourceyou're gonna create for your
trusted parties and your family.
Hey, when I die or when I havecognitive impairment, here's
(23:17):
where all my accounts are.
Here's how to access them.
Here's the trusted parties I workwith my estate attorney my tax,
their contact information, etcetera.
So that's estate planning.
And then having done all that,now we can talk about investing.
Hey, let's keep the investing piece assimple as possible because I've already
given you a ton of homework to do in thearea of estate planning and insurance.
(23:39):
Perhaps your financial basicsas well, like shoring up that
emergency tracking your expensesif you haven't done that already.
And then time permitting on these twohour phone calls that I have with folks,
and then we'll do some tax planning.
After that, some taxplanning opportunities.
Maybe that means doing a backdoor Rothhour contribution, maybe that means taking
advantage of a mega backdoor Roth 401kcontribution, your workplace retirement
(24:01):
plan, for example, maybe using IRA-HASAJackie, I know you know all about that.
Yeah, that's my thing.
so that's usually where I round it out.
I always hesitate to say the workI do with folks is comprehensive.
'cause there's a lot of stuff Idon't cover as I shared with you
in an email beforehand, Bill, andthat's gonna be, I don't do any
sort of student loan planning,that's not in my area of expertise.
Any private equity compensationalso out of my area of expertise.
(24:24):
Cross border finance, don'tknow too much about that, right?
So if you're trying to move moneyfrom India to here or back as some
examples of folks that I've hadconversation with before, I'm not
a good resources for that either.
So, hesitate to use the wordcomprehensive that reason.
'cause there's a lot of stuffthat I just don't cover.
But I certainly do try to cover asmuch as possible, especially 'cause
(24:45):
a lot of areas impact other areas.
Again, so much impacts howyou're going to invest.
Yeah, John, and I think you made agreat point just at the end there.
For anyone that is looking to work forfinancial planner, make sure that the
planner focuses on your area specialty.
For instance, student loans.
There's a student loan plannerwho is a partner with the show.
(25:05):
I'll make sure the linkis in the show notes.
They do planning around your studentloans, that's what they specialize in.
John, to me, I would call it comprehensivebecause it hits almost all the different
areas of personal finance, and it doesn'tjust talk about investing, it doesn't
just talk about taxes, it's a whole bunch.
Obviously there's a lot there.
(25:26):
What I really appreciate, and I donot say this very often, but on your
website you have sample financialreviews and they're usually, what, seven,
eight pages or something like that?
Got beautiful visuals and everything.
Let me just mention a fewprofiles that you have on there.
Now, Bill, I pulled one of them foryou because it reminded me of you.
(25:47):
It was something about a physician, butone of the examples is dual income, do
it yourself investor household, withthe majority breadwinner, retiring
this year, a mid-career seven figureincome household a business owner
and longtime do it yourself investor.
So we'll include a link to these, buteverything John just mentioned, he has
(26:09):
provided a very nice clean sample thatdo it yourselfers can reference is you
really want to start putting this togetherfor yourself or have a sense of the
things that you should be looking at.
Even if you want to work witha professional like John.
Well, I mean, there's a lot that you threwout there and there may be a couple of
things that we should touch on becauseit's important to track your spending
(26:31):
and have a good rainy day fund, but thenyou get into some of the tax planning
stuff and you mentioned Backdoor Roth,IRA Mega Backdoor Roth, I-R-A-H-S-A.
give us a brief snippet ofwhat a backdoor Roth IRA is.
Others may wanna hear aboutwhat a mega backdoor Roth IRA is
Sure.
Backdoor Roth IRA contribution.
It's a way for high earners to make aRoth contribution, so there's phase
(26:55):
out limits, which is a nerdy way ofsaying if you make too much money
tax code says you can't contributeto a Roth IRA directly, but you still
contribute to a Roth IRA indirectlywith a backdoor Roth IRA contribution.
And I think here's a great opportunityfor me to preface not tax advice
for educational purposes only.
Speak with your investment professionalbefore making any decisions.
(27:16):
What you can do is you can make acontribution to a traditional IRA and then
just immediately convert that contributionto a Roth IRA 'cause there's no
contribution limits on a traditional IRA.
Now there're certainly phasedouts of deductions without this
necessarily apply anyway for abackdoor Roth IRA contribution, we're
not gonna take the deduction anyway.
But one thing to bear in mind whenmaking a backdoor Roth IRA contribution
(27:40):
and here we're getting a little moregeeky you don't wanna have any tax
deferred dollars in any other IRA.
So, SEP IRA, traditional IRA rolloverIRA, simple IRA if you have money
in those accounts when making abackdoor Roth IRA contribution,
it's gonna create a tax bill.
So what's the solution for this?
If you can, you wanna move those dollarsinto a traditional workplace retirement
(28:04):
plan if that workplace retirement planaccepts transfers and has low fees.
And normally you can almostonly do this if you're still
working with that employer.
So if you've got an old 401k somewhere youalmost certainly can't make that transfer.
So hopefully that answerwasn't too complicated.
But in short, backdoor RothIRA contribution, it's a tax
strategy where high earners canget more money growing tax-free.
(28:27):
Yeah, I think just another blind spot.
I hear a lot of people talkingabout Backdoor Roth, but they forget
about this whole pro rata rule andthings that you just explained.
So another reason to work with aprofessional or do some additional
research if you decide you want todo some of these things yourself,
there's all these gotchas 'causewe know how the IRS works.
I never even thought about that wholepro-rata rule that you just explained
(28:51):
until like a couple years ago.
But thank you for explaining that.
We've got the guy here, so,
And then you also mentioned, and I knowthis is a complicated finance 2 0 1 type
thing, and you have some great visualsin your sample financial plans, we keep
hearing this term Mega Backdoor IRA.
This doesn't apply to necessarily allpeople 'cause it's plan specific, but
(29:12):
can you basically give us the 10,000 footview of what a mega backdoor Roth IRA
I'd say one clarifying point is I wouldcall it a mega backdoor Roth 401k, not
necessarily a mega backdoor Roth IRA.
So mega backdoor Roth 401k is eitheryour workplace retirement plan or maybe
if you're self-employed like myself,and you've set up your own individual
401k to have the following feature isthat there are contribution limits on
(29:36):
how much you can put into a workplaceretirement plan, such as a 401k.
So it's gonna be 23,500 I believe for 25.
It goes up with inflation eachyear, and then you have a catch
up contribution of 70 five hundredif you're over the age of 50.
So, that's the most you can put intoa workplace retirement plan, right?
Whatever 401k you might have with youremployer as called an employee deferral.
(29:59):
Now then your employer, theycan put in an amount as well.
Maybe it'll be $0, maybe it'll befixed amount, maybe it'll be a match.
Maybe it'll be a percent, but theycan make a contribution as well,
and they can do that up to, I wannasay it's 46,500 for this year.
Again, the numbers go up everyyear, so forgive me if I don't
have the exact figure memorizedbut I do have it written down.
(30:20):
And so that gives you an allin one contribution limit of
what's gonna be $70,000 for 2025.
So you could get up to $70,000 into yourworkplace retirement plan for the year
if your workplace plan allows additionalcontributions that go by many names.
These additional contributionscan be called after tax.
(30:41):
They can be called non-deductible.
They can be called voluntary after tax.
They can be called post-tax.
But it's a way you besides youremployer and besides the employee
deferral of 23,500, a way you canget more money into that plan.
And so if your plan offers this feature,then you can up to 70 grand, not
including ketchup contribution into yourworkplace retirement plan each year.
(31:02):
And that's big money, right?
That's 70 grand.
That's gonna be a lot morethan just that 23,500.
This is something I do for my ownindividual 401k, individual 401k
for self-employed folks, right?
And I can put 70 grand, into myindividual 401k because it allows
those after-tax contributions.
Now to keep going a littlemore geeky on the tax code.
Once you make those after-taxcontributions, you don't necessarily
(31:25):
wanna let them just sit there asafter-tax contributions, because if
they just sit there and they growthen the growth on those after-tax
contributions becomes taxable.
It creates tax deferred dollars.
And so ideally what you do is youtake those after-tax contributions,
which you never took a deductionfor because they are after tax, and
then you convert them to Roth, andnow all those dollars grow tax free.
(31:49):
Right?
So imagine making a $70,000contribution into your 401k and it
grows tax free for your entire life.
So a pretty appealing strategy.
It's pretty complicated.
Again, if you're self-employed,you can set this up on your own
individual 401K a little bit more work.
The off the shelf offerings of prototypeplans that you get over trap or Fidelity
they're not gonna have this baked intowhat you can get with them directly.
(32:12):
You'll have to use a third party toadd these additional features to add
the after-tax contribution featureand the In-Plan Roth conversion
feature to your individual 401k.
So that's if you're self-employed.
But if you're working at a really bigcompany with a really sophisticated 401k,
they're gonna have this feature, right?
So big tech companies have thisFacebook, Google Apple they already
have this feature in their 401k.
(32:34):
If you got a little mom andpop dentist operation with
their 401k run by John Hancock.
Probably not, you're almost certainlynot gonna have this feature in there.
That's not to say you can go toyour boss and be like, Hey boss, I
found a way that you can save a lotmore money into our workplace 401k.
I have worked with folks in thepast in setting these sort of
features up with the workplace.
(32:56):
401k K plan.
There was a dermatology practice.
They had a simple IRA, had highfees, had lower contribution limits.
So we worked together.
We went to Vanguard.
We set up a workplace 401k that hadthese after tax contribution features
as well as In-Plan Roth features thatnow, the place can save a lot more money
in that plan and at lower cost too.
so obviously that is, great maneuverfor high income earners that still
(33:18):
want to get some tax benefits.
Now, I was a modest income earner,80,000 ish or whatever before I retired,
so I couldn't exactly do 70,000.
However, I'm the consummatecurious, do it yourselfer.
So there's a couple years whereI did do that Mega backdoor Roth.
I was with a company, it wasn't theGoogle or the Facebook, but it was
a pretty big company that's in thes and p 500 and they did allow it.
(33:41):
If you're a high income earner, you'rewanting to try to get more into those tax
advantage accounts, this is ideal for you.
You just have to go to youremployer for the 401k or whatever
and see if they offer that.
But that is tremendous.
Something I had never heard ofbefore, but when I heard about it,
I'm like, you know what, I'm gonnasee if it works for my company.
I only got a couple thousanddollars in there, whatever.
(34:02):
But it, it does work andmy company did offer it.
Great maneuver for higher income earners.
so other terms that you mentioned therethat I think are important for our
audience to understand more granularlyare something like tax loss harvesting
and tax gain harvesting that youtalk about in your tax strategies.
Can you take us through briefly whateach of those is to pique the interest
(34:23):
of our audience, to dig deeper?
first I'll say the sample planson my set are a little bit old.
So one, they don't necessarily reflectall of my current updated philosophies
when it comes to personal financeinvesting, tax planning et cetera.
And then also my currentwriteups are a lot longer.
Depending on how much folks wannaread, they can bear that in mind.
(34:43):
Tax loss harvesting, it'spossibly a double-edged sword.
So I'm not as bullish on taxloss harvesting as when I
initially wrote those write-ups.
Yes, you can save some taxes todaybut that might be creating a larger
lifetime tax bill for you in the future.
It's gonna depend on your circumstance.
Now, if you've got more money thanyou're possibly ever gonna spend
(35:04):
and your heirs gonna inherit it andthere's gonna be no future tax law
changes and that's just Then maybetax loss harvesting can make sense.
It's gonna allow you to save sometaxes today that will never have to
be repaid if you're possibly gonna bespending that money later in the future,
I would think twice about tax lossharvesting today because yes, you save
(35:27):
some taxes today, but as I mentionedyou might pay those taxes back later.
And moreover, you might even paythem back at a higher tax rate.
Taxes right now are if your long-termcapital gain taxes are effectively
on sale relative to recent history.
So I would be very thoughtful aboutdoing tax loss harvesting today.
(35:48):
Michael Kitsis wrote areally great post about this.
Perhaps we can have you guys link to itin the show notes talking about think
twice about doing tax loss harvesting.
Tax gain harvesting is the opposite.
If we're in a low tax bracket,maybe it makes sense to increase
our basis 'cause that can help saveus on some taxes in the future.
I'm gonna sell this position todayat a gain, but the gain is not gonna
(36:09):
be taxable such a low tax bracket.
That's gonna be the case whenlooking at your federal taxes.
But you want to bear inmind state taxes too.
So if you're in a state, thatdoes have state income taxes.
I would also be thoughtful aboutdoing tax gain harvesting today.
But if you're in a state wherethere are no state income taxes,
that certainly makes it a strongercase for tax gain harvesting if
(36:29):
you're in a lower tax bracket today.
And you expect to needthis money in the future.
that was helpful.
Yeah.
Can you just for our audience too, takeus through a little bit of the mechanics,
because there are some specific mechanics.
It sounds sexy, tax loss harvesting, butthere's mechanics that you have to go
through in order to harvest the loss.
Can you just take us through the processthat people have to watch out for?
(36:50):
It's rather complicated which iscertainly another reason why you
don't necessarily want to jump intoit as maybe we'll talk about later.
I've got a huge bias forespecially investing simplicity.
So tax loss harvesting isI've got an investment.
I bought it at a hundreddollars, market's down.
Now the investment is valued at right?
So I can sell it at 90 today.
(37:12):
Hey, now I've got a $10 loss onmy taxes that's gonna help save
me taxes on my annual tax bill.
But now our problem isyou got $90 in cash.
You no longer have investment exposure,so you need to reinvest that 90,
you need to buy investments again.
Now, if you buy pretty muchthe same investment, IRS
says no, you can't do that.
And so now you don't have theability to write off that loss,
(37:33):
that's called a wash sale rule ifyou want to be a real nerd about it.
So how do you get aroundthis wash sale rule?
And again not tax advice foreducational purposes only secret
or tax professional before makingdecisions is you wanna buy an investment
that's not substantially identical.
So if I've got V-T-S-A-X,for example, vanguard's low
cost broad market index fund.
(37:55):
I'll sell that and then I'llbuy I XUS instead another low
cost broad market index fund.
I'm sorry, IXUS that's the internationalvariety . Let's do iShares.
Total U.S. I've got themutual, there we go.
ITOT, right?
There's a ticker for that one.
So this is gonna maintain myinvestment exposure, but I
still get to have my tax loss.
(38:17):
Now the catch is nowmy basis is $10 lower.
Right now it's 90 andinstead of a hundred.
So if I ever sell it at a hundred whenI need cash, now I've got that $10 gain.
And if I'm in a higher tax bracketwhen I do that the tax I was harvesting
would have been a bad decision.
So it can get prettytricky pretty quickly.
The other thing you wanna bear in mind isthat, if you're still earning, if you're
(38:39):
not yet retired and we're still investingand saving regularly that means that
you're regularly buying VTSX, for example.
So if we're selling VTSX from one shareof it, and then our automated investing
program is buying it the next day, boom,we've just triggered the wash sale rule.
So if you're making ongoingcontributions tax loss harvesting
(39:00):
gets even more complicated.
You've gotta find other funds to investin 'cause the wash sale rule can extend
as much as 60 days from the date of sale.
So pretty complicated strategy.
Cody Garrett frames it prettywell return on hassle, right?
Is the juice worth thesqueeze on this one?
I would say probably not.
a lot of the do it yourselfers I workwith really enjoy the nitty gritty
(39:23):
and the investing minutiae and reallytry to optimize as much as possible.
And that's why they might be interestedin a lot of these things as much as I
try and sometimes talk them out of itencouraging them to keep it simpler.
Yeah.
And those are just brokerage accounts.
So if you have 401k retirementaccounts, wash sale rule, tax
law, none of that matters for taxadvantage, retirement accounts.
Before we get into today's show,we're going to listen to a great speak
pipe, a voice message from Jennifer.
Yeah.
Jennifer sends us somethingabout the episode 1 51, with
Cari Carbonaro regarding Womenand the Great Wealth Transfer.
Let's take a listen.
(01:03):
What a great message, Jennifer.
Thank you.
And we want to hear from you.
Leave us a voicemail on SpeakPipethat's always in a show notes.
And we'd also love for you to leaveus a five star review on Apple
or wherever you get your podcast.
I.
Yeah, we love hearing from youand let's get on with the show.
I.
The philosophy doesn't change justbecause you have more money doesn't mean
(01:27):
you have to be more complicated, right?.
Yeah, certainly.
And to be a real nerd aboutit, investing is frankly just
about making the numbers bigger.
So if you wanna make your numbersbigger, then you want to take
out a smaller number from thatbigger number in the form of cost.
So you always want your cost to be low.
I mean, that's what you should leadwith when it comes to investing success
and not the sexiness of the investment.
(01:50):
Again, alts, private equity, et cetera.
So if you're leading with howsexy your investment is you're
probably off to a bad start.
it's really hard to be boringand as Alan Roth says dare to be
dull, it's really hard to be dull.
Set the tone with regards to alts andeverybody sort of followed into that
(02:10):
and fell into the alt trap as you couldpotentially call it where we're seeing
sort of a payback or a squeeze these days.
It's really hard to be simple.
It's hard to stay that coursebecause look what my friend's doing.
It's all this comparison is thethief of joy and we don't need
to compare ourselves to others.
There are very simple portfolios likeyou advocate in your plans that are
(02:31):
applicable to really most people.
we have to talk about your emergencyfund before we talk about your
investment portfolio, because youremergency fund does impact how we're
gonna design your investment portfolio.
Same thing for yoursocial security strategy.
That's gonna impact how youdesign your investment portfolio.
Same thing for how wellfunded you are for retirement.
(02:52):
That's gonna impact how youdesign your investment portfolio.
A lot of folks just want to jump rightinto investing and it often doesn't
make sense to do so 'cause there's otherthings we need to know that's gonna help
us better answer the investing question.
We look at those othertopic areas as well.
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Biden.
News magazine.
I think he's actually youngerthan both of us, Bill.
John has been featured in consumerfacing and advisor facing publications,
including the New York Times.
(05:09):
The Wall Street Journal MichaelKit's blog, Nerd's Eye view.
In 2019, John and his wife Lean,dedicated one full year to travel.
So he's doing more thanjust financial planning.
the two started their venture by takingfour months to convert a cargo van, this
is so cool, into their home on wheels.
(05:32):
They then spent several months traversingthe Western United States and Mexico.
Lean, documented their adventureon her blog, and we will
include that in the show notes.
So John serves on the board of theJohn C. Bogle Center for Financial
Literacy, which we all love.
It is a nonprofit and theydedicated to helping people
make better financial decisions.
(05:54):
But not only that, in the past, John hasprovided pro bono financial planning to
low income household with the financialplanning association's pro bono program.
And he's also done work withthe San Diego Financial Literacy
Center, which is also a 50C3.
He has also volunteered with SecondChance Dog Rescue, four Paws Dog
(06:17):
Rescue fostering rescue dogs andas a league cycling instructor.
He's also been a part of TheLeague of American Bicyclist.
John has taught safe cyclingtechniques to youth and adults in the
San Diego County Bicycle Coalition.
So I love someone that's doingmore than just his career.
(06:37):
So shout out to John.
Thank you John.
And John, welcome Fi.
Thank you.
I appreciate it.
Surreal.
I hear that whole bio read.
It's funny, I think about some of thoseprojects that I used to do that are long
gone now that I've got a couple young kidsI don't do too much of that stuff anymore.
Yeah, I wanted to be sure to name itbecause we are more than our career and
I feel like it just says a lot aboutyou as a person, some of the things
(07:02):
that you do outside of your daily grind.
So I was very impressed with allthese things that you did beyond
financial planning, right, Bill?
Well, he gives back in so many ways andtoday he's giving back to our audience
of late starters by educating us.
But in order to understandJohn, he's not just his bio.
There's gotta be this little kidinside of the big kid John, and
there's gotta be some formative yearsthat led him to be the force and
(07:23):
financial planning that he is today.
John, take us back to your youth.
What were the personal and financialthings that happened in your life
that led you to where you are today?
Gosh.
Wow.
I, guess I'd have haveto think about that one.
I know when I was in high school wasinvolved in a, a youth organization.
(07:44):
I really wanted to be involved init when I first learned about it.
There wasn't a chapter in my area.
So I set one up.
That was fun being present, a littlechapter of kids doing all sorts of
extracurricular and volunteer activitiesgiving back to the community, etcetera.
Always been a big fan of low costinvesting, 'cause that certainly
is the right way to do it.
There's other ways to doit, but it's probably gonna
(08:04):
lead to the worst results.
So, going back to the investing piecesmart investors are always gonna
focus on keeping your costs low.
Yeah, but, so when you were a little guy,were you an investor as a young kid, did
your parents bring this about to you?
Where did your interestin money take hold?
I know that that wasn't the case forme, I didn't get any education in it.
Did you have a curious path or wasthis always a passion of yours?
(08:26):
Certainly wasn't always a passion, justgoing back to that altruistic streak.
I, started my career inthe nonprofit sector.
Again, just wanted to do the right thing.
Didn't really love the nonprofit sector.
And then in studying for thatindustry, doing my master's thesis,
I decided to pivot to personal,or rather to investing in finance.
So I looked at how endowments investand that's where my thesis was born.
(08:49):
And that's when I learned allabout, hey, index funds are
investors best bet for success.
Even if you're an endowment, auniversity endowment with a billion
dollars, you can have all sorts ofreally sexy things in your portfolio,
like private equity and hedge funds andall sorts of really attractive alts.
But that doesn't matter'cause fees are what matter.
And again, that's where Ilearned that keeping costs
(09:11):
low is an investor's best bet.
So , that's the course to get into
Your thesis is interesting tome because it's apropos today.
The government's made some policychanges that have really pinched some
of our leading financial educationalinstitutions because they have so much
allocated to alternative investmentsthat have an illiquidity problem.
Are we coming back to this where theythought this would always be there?
(09:34):
The government will always have ourbacks, but hey, lo, and behold they don't.
And are we finding ourselves overallocated to alternative assets
and higher education leadingto this illiquidity crunch?
Yeah, I'd say this isn't a new problem.
I mean, this is a problem going back asearly as the financial crisis, looking
at how the endowments dealt with that.
At that time they had a lot of liquidassets numbers were down and they weren't
(09:58):
able to sell those assets It was abig problem for endowments back then.
Different institutions aredoing different things in terms
of, doing more alts or less.
But man, the problem of alts still remain.
There's still almost certainlynot the right investing solution
for practically everyone.
Well, it's interesting too thatthe same principles that hold true
(10:18):
for the DIY investor, little oldme, can hold true and should hold
true to our largest institutions.
The philosophy doesn't change justbecause you have more money doesn't mean
you have to be more complicated, right?.
Yeah, certainly.
And to be a real nerd aboutit, investing is frankly just
about making the numbers bigger.
So if you wanna make your numbersbigger, then you want to take
(10:40):
out a smaller number from thatbigger number in the form of cost.
So you always want your cost to be low.
I mean, that's what you should leadwith when it comes to investing success
and not the sexiness of the investment.
Again, alts, private equity, et cetera.
So if you're leading with howsexy your investment is you're
probably off to a bad start.
I know a lot of these big endowmentsthey pay to have their assets
(11:03):
professionally managed, right?
And that of course add to the fees.
Do you work with any endowments?
These are billions of dollarsthat could be managed.
Now we know as little do-it-yourselfers.
Yeah.
Passive index works.
Indexing works.
But, even if you add somezeros, it's the same thing.
Do you work with any of these?
Because I think they think they'redoing the right thing, but...
(11:24):
yeah, it's difficult to commenton whether they think they're
doing the right thing or not.
I mean, if you reallywant to geek out on it.
There is some career risk involved ifyou were to be managing an endowment
portfolio and say, hey, let's go with allindex funds, because at that point, what
are you paying the manager for if they'retelling you just to invest index funds.
And then if all the other endowments arealso doing alts you don't necessarily
(11:46):
want to be the one outlier saying,Hey, let's do something different.
There's also conflicts of interest.
The hedge fund manager is onthe board of the endowment.
He makes a contribution to the school.
And then the school invests in his fund.
So, there's some non-investmentreturn focused reasons.
Why these institutions may beinvesting in anything but index funds.
(12:07):
There are a handful of some smallinstitutions that I do advise
with insofar as how to invest.
And of course it's always gonna be, Hey,let's use ultra low funds to invest.
That is your best betfor investment success..
Yeah, and for the boards that I serveon, usually I will be on the investment
committee or something like that.
And I'm definitely always advocatingfor simple index funds and giving
them obviously research andthings to sort of back it up.
(12:30):
But we will include that in theshow notes because it's fascinating
what you did your thesis on.
To me, it's a very relatable thingthat possibly could help out endowments
and some of the other I guessorganizations that you talk about.
So kudos for that.
it's really hard to be boringand as Alan Roth says dare to be
dull, it's really hard to be dull.
(12:50):
Set the tone with regards to alts andeverybody sort of followed into that
and fell into the alt trap as you couldpotentially call it where we're seeing
sort of a payback or a squeeze these days.
It's really hard to be simple.
It's hard to stay that coursebecause look what my friend's doing.
It's all this comparison is thethief of joy and we don't need
to compare ourselves to others.
(13:11):
There are very simple portfolios likeyou advocate in your plans that are
applicable to really most people.
Yeah, I think most people either read thewrong parts of Swenson's book or read the
parts where he said, Hey, don't do this.
And then blacked out and then decidedto go into alts and everything else.
If you read Swenson's book, Swenson theguy who ushered in the popularity of alts
(13:33):
into endowments he talks a lot about thedifficulty and the process you have to go
through to be successful in these areas.
I think a lot of folks miss that'cause that's the boring part, right?
Instead it's all about, hey, I can bragabout that hedge fund that I'm invested
in cause it certainly sounds cool.
Well, before we dive into what doesa comprehensive financial plan and an
(13:54):
investor policy statement look like,i've got to hear about this year of
alternative or alt living that you didwhere you rehabbed a van on your own with
your wife and toured around the country.
Are you a house hater because youwrote a blog post- don't buy a
house, take a sabbatical instead.
People don't do this.
(14:14):
What drove you to be a house hater?
A van lover living the van life.
I think he's setting a trap.
He's setting a trap, John.
I wouldn't really say I'm a househater so much as I don't think folks
are thoughtful enough about thepros and cons of home ownership.
When we went on our little adventure,we sold our home and that funded our
(14:35):
sabbatical and also some rental propertyinvestments later down the line.
But that's a whole nother story.
Man, the sabbatical was an adventure.
I wouldn't recommend building a van.
I certainly learned a lot.
I learned all about creating awhole electrical system, solar and
having the vehicle engine charge upthe coach battery, and AC and DC,
(14:57):
and generators and all that stuff.
It was a very challenging project, butgosh, it certainly was a lot of work.
We initially had to do it for one monthfor the build, and it stretched into four.
If you've never done before, what we weredoing, and you want it to be at least,
reasonably comfortable and enjoyable,you're gonna spend a lot of time on it.
Yeah.
And then we traveled forseveral months in the US.
(15:17):
We were planning to domore than just Mexico.
We were planning on doing someCentral America, but COVID hit
right when we had got to the tailend the southern end of Mexico.
And so our travel pretty muchstopped there at that point
'cause of all the shutdowns
this is not something thatpeople think of doing.
Where did you get this wild hair?
This is counter-culturalto what the US is like.
(15:37):
Get your house, your picket fence,grow your kids, stay at your job by
and large, up until recently, for 30or 40 years, and you are leading the
wave on how to think differently.
What helped you think differently abouthousing and adventure early in life, as
opposed to buckling down and becomingthe next 31, 30 2-year-old retiree?
(15:58):
I wouldn't say necessarily didit early, at least relatively.
For us it was our lastbig hurrah before kids.
So, hey, we're gonna havekids before we do it.
Let's do the thing that wecan't do when we do have kids.
So that was the idea behind thetraveling and it worked out pretty well.
So now we got a couple young kids andcan't do really much of anything else
at all right now short of swim classesand taking 'em to birthday parties and
(16:19):
whatever you needed to keep a couplelittle young human beings alive.
So it definitely did work out well 'causewe got to scratch that itch, if you will.
we live that life for sure.
So you got the kids now andyour wife, she documented this.
So it's memorialized for those thatwanna hear about John's adventures about
the van life and all that will includeher blog posts and the show notes.
(16:39):
'cause I found them kind of cool.
Now one other thing in your introI mentioned that you sit on the
board of the Bogle Center nonprofitand there's a really cool thing
that they're doing right now.
Can you just brieflytalk to us about that?
Yeah, so, Johnson u Bogle, centerfor Financial Where they can about
investing uh, at low cost successfullylearn about investing, at low cost
(17:02):
successfully, for themselves.
We have an annual conferencethat we do every year.
I know You guys haveparticipated in the past.
I know we're coming back formore, so I, hope that speaks
to how great the conference is.
Tickets are on sale now.
By the way, boglecenter.netto check that out.
To answer your question, Jackie, recentinitiative we're doing Jonathan Clements
getting savings going initiative.
(17:24):
John Clements is prolificwriter on personal finance.
He's got a new book out that's acompilation of all his best writings and
proceeds are going to help jumpstart theinvesting savings of low income youth.
So it's a special side project thatthe Bogle Center is involved in.
Let's figure out, hey, what happens ifwe give a thousand dollars to low income
(17:46):
earners to put into a Roth IRA to invest?
So little new side project that initiativethat the Bogle Center is involved.
Oh, actually maybe not little,it's a rather big project that
the Bogle Center is involved in.
At the conference everyyear we have two tracks.
We have a retiree track anda track for younger folks.
whether you're saving for retirementor whether you're close to
retirement we've got a track for you.
(18:07):
We've got content for youat the annual conference.
Yeah.
Bill and I are both prettyimpressed with that.
As soon as I heard about it,I immediately made a donation.
Bill made a donation, and sowe definitely wanna support
that for any of our listeners.
The Bogleheads Center provides a tonof financial literacy and education.
Even at the conference, if you can'tmake the conference, they record
(18:27):
all of the talks and offer themcompletely for free on YouTube.
So if you wanna support that, we'llinclude that in the show notes.
One of my favorite charities.
And I do love going to the conference.
Now, did you mention the dateof the conference is in October.
Yeah.
October 17th through 19th this yearSan Antonio Texas at the Hyatt.
And then for folks who didwant to contribute to the
(18:48):
center, boglecenter.net/donate.
And this year Jackie's speaking at it.
So all the more reasons to go and seeyour hostess with the most is talk about
Fi and Fire for a generational change inwhat the Bogleheads were is now no longer
all these older people with gray hair.
There's a bunch of youth andsons and daughters of Bogleheads.
It's having a generational turnover and weinvite you to join us at this conference.
(19:15):
Bogle heads are diehards originally,and one of the things that is pivotal
in a bogleheads life is sort of thiscomprehensive financial review and
ultimately boils down to in the investingpiece and investor policy statement.
Your day job is hourlyadvice for DIY investors.
And you asked the question isone day financial review for you?
(19:36):
I've looked at on your website several ofthese financial reviews and they're quite
comprehensive and they have similaritiesthat run through them with the individual
differences that the people come toyou with questions that they have.
Can you just give us a 10,000 foot viewof what this one day financial review is
and what are the categories of things thatyou like to go through with people to help
(19:57):
them get their financial lives sorted?
what is this globalfinancial review look like?
Because it can be overwhelming.
How do we break this down?
What are the things that you like tolook at when they come to you wanting
this one day review, what are the kind ofthe items that you need to go through in
order to understand their and help them?
I'll answer that question in the orderthat I usually cover it with folks, 'cause
(20:20):
that's what's burned into my memory.
So we look at a lot of topic areas andone thing that I always stress too folks
is that kind of need to do that becausesome topic areas which you might not
even believe impact other topic areas.
That's to say we have to talk aboutyour emergency fund before we talk about
(20:41):
your investment portfolio, because youremergency fund does impact how we're
gonna design your investment portfolio.
Same thing for yoursocial security strategy.
That's gonna impact how youdesign your investment portfolio.
Same thing for how wellfunded you are for retirement.
That's gonna impact how youdesign your investment portfolio.
A lot of folks just want to jump rightinto investing and it often doesn't
(21:03):
make sense to do so 'cause there's otherthings we need to know that's gonna help
us better answer the investing question.
We look at those othertopic areas as well.
So already mentioned and mentioned inthe order that I cover 'em with folks.
Financial basics, that'sgonna be your emergency fund.
And that's gonna be if you're trackingyour spending, how you're tracking
it, and accurate at that or not.
And then social securitywhat your strategy is there.
(21:25):
Then retirement planninghow well funded you are.
From there I looked at insurance coveragefor folks if we still have a while to
go until we're funded for retirement.
And we'll know that because we'llalready have done retirement planning.
At that point.
Then we wanna talk about disabilityinsurance and then if you have dependents
on you that need your income thenlife insurance and then long-term care
insurance as well might be somethingthat can be a fit for someone.
(21:49):
And that'll know the answerto that after we've done the
retirement planning exercise.
That's to say, Hey, if your retirementplan looks really, really good and you've
got more money they can possibly everspend, then at that point we know, hey
we probably don't need care insurance.
then the opposite is the case.
Hey, if your retirement plan islooking pretty shallowly funded, then
long-term care insurance might be aproduct that help mitigate risk for you.
(22:10):
For example, Umbrella Insurance,that's a big thing most folks miss.
And then to round it off, property andcasualty coverage, optimizing our auto
insurance our homeowner's etcetera fromthere tackle estate planning with folks.
And this is a huge thingthat most folks miss.
I'll get folks who wanna talk about bondduration, but then they'll have a kid a
(22:32):
minor child and not have a will, right?
So, hey, let's make surewe do our estate planning.
So the will, it's almost certainly gonnamake sense if you have minor children.
Same thing for a trust.
And then I can't think of a situationwhere someone wouldn't want a
financial power of attorney and anadvanced healthcare directive for
some sort of proxy for healthcare.
Those are formal estate planningdocuments that you work with your estate
(22:53):
attorney to create likely unless youuse an off the shelf offering, which
might be a solution for some folkswho have really simple situations.
And then to round out, we'llhave an emergency letter.
So an emergency letteris an informal resource.
This isn't something weneed an estate planner.
This is gonna be a resourceyou're gonna create for your
trusted parties and your family.
Hey, when I die or when I havecognitive impairment, here's
(23:17):
where all my accounts are.
Here's how to access them.
Here's the trusted parties I workwith my estate attorney my tax,
their contact information, etcetera.
So that's estate planning.
And then having done all that,now we can talk about investing.
Hey, let's keep the investing piece assimple as possible because I've already
given you a ton of homework to do in thearea of estate planning and insurance.
(23:39):
Perhaps your financial basicsas well, like shoring up that
emergency tracking your expensesif you haven't done that already.
And then time permitting on these twohour phone calls that I have with folks,
and then we'll do some tax planning.
After that, some taxplanning opportunities.
Maybe that means doing a backdoor Rothhour contribution, maybe that means taking
advantage of a mega backdoor Roth 401kcontribution, your workplace retirement
(24:01):
plan, for example, maybe using IRA-HASAJackie, I know you know all about that.
Yeah, that's my thing.
so that's usually where I round it out.
I always hesitate to say the workI do with folks is comprehensive.
'cause there's a lot of stuff Idon't cover as I shared with you
in an email beforehand, Bill, andthat's gonna be, I don't do any
sort of student loan planning,that's not in my area of expertise.
Any private equity compensationalso out of my area of expertise.
(24:24):
Cross border finance, don'tknow too much about that, right?
So if you're trying to move moneyfrom India to here or back as some
examples of folks that I've hadconversation with before, I'm not
a good resources for that either.
So, hesitate to use the wordcomprehensive that reason.
'cause there's a lot of stuffthat I just don't cover.
But I certainly do try to cover asmuch as possible, especially 'cause
(24:45):
a lot of areas impact other areas.
Again, so much impacts howyou're going to invest.
Yeah, John, and I think you made agreat point just at the end there.
For anyone that is looking to work forfinancial planner, make sure that the
planner focuses on your area specialty.
For instance, student loans.
There's a student loan plannerwho is a partner with the show.
(25:05):
I'll make sure the linkis in the show notes.
They do planning around your studentloans, that's what they specialize in.
John, to me, I would call it comprehensivebecause it hits almost all the different
areas of personal finance, and it doesn'tjust talk about investing, it doesn't
just talk about taxes, it's a whole bunch.
Obviously there's a lot there.
(25:26):
What I really appreciate, and I donot say this very often, but on your
website you have sample financialreviews and they're usually, what, seven,
eight pages or something like that?
Got beautiful visuals and everything.
Let me just mention a fewprofiles that you have on there.
Now, Bill, I pulled one of them foryou because it reminded me of you.
(25:47):
It was something about a physician, butone of the examples is dual income, do
it yourself investor household, withthe majority breadwinner, retiring
this year, a mid-career seven figureincome household a business owner
and longtime do it yourself investor.
So we'll include a link to these, buteverything John just mentioned, he has
(26:09):
provided a very nice clean sample thatdo it yourselfers can reference is you
really want to start putting this togetherfor yourself or have a sense of the
things that you should be looking at.
Even if you want to work witha professional like John.
Well, I mean, there's a lot that you threwout there and there may be a couple of
things that we should touch on becauseit's important to track your spending
(26:31):
and have a good rainy day fund, but thenyou get into some of the tax planning
stuff and you mentioned Backdoor Roth,IRA Mega Backdoor Roth, I-R-A-H-S-A.
give us a brief snippet ofwhat a backdoor Roth IRA is.
Others may wanna hear aboutwhat a mega backdoor Roth IRA is
Sure.
Backdoor Roth IRA contribution.
It's a way for high earners to make aRoth contribution, so there's phase
(26:55):
out limits, which is a nerdy way ofsaying if you make too much money
tax code says you can't contributeto a Roth IRA directly, but you still
contribute to a Roth IRA indirectlywith a backdoor Roth IRA contribution.
And I think here's a great opportunityfor me to preface not tax advice
for educational purposes only.
Speak with your investment professionalbefore making any decisions.
(27:16):
What you can do is you can make acontribution to a traditional IRA and then
just immediately convert that contributionto a Roth IRA 'cause there's no
contribution limits on a traditional IRA.
Now there're certainly phasedouts of deductions without this
necessarily apply anyway for abackdoor Roth IRA contribution, we're
not gonna take the deduction anyway.
But one thing to bear in mind whenmaking a backdoor Roth IRA contribution
(27:40):
and here we're getting a little moregeeky you don't wanna have any tax
deferred dollars in any other IRA.
So, SEP IRA, traditional IRA rolloverIRA, simple IRA if you have money
in those accounts when making abackdoor Roth IRA contribution,
it's gonna create a tax bill.
So what's the solution for this?
If you can, you wanna move those dollarsinto a traditional workplace retirement
(28:04):
plan if that workplace retirement planaccepts transfers and has low fees.
And normally you can almostonly do this if you're still
working with that employer.
So if you've got an old 401k somewhere youalmost certainly can't make that transfer.
So hopefully that answerwasn't too complicated.
But in short, backdoor RothIRA contribution, it's a tax
strategy where high earners canget more money growing tax-free.
(28:27):
Yeah, I think just another blind spot.
I hear a lot of people talkingabout Backdoor Roth, but they forget
about this whole pro rata rule andthings that you just explained.
So another reason to work with aprofessional or do some additional
research if you decide you want todo some of these things yourself,
there's all these gotchas 'causewe know how the IRS works.
I never even thought about that wholepro-rata rule that you just explained
(28:51):
until like a couple years ago.
But thank you for explaining that.
We've got the guy here, so,
And then you also mentioned, and I knowthis is a complicated finance 2 0 1 type
thing, and you have some great visualsin your sample financial plans, we keep
hearing this term Mega Backdoor IRA.
This doesn't apply to necessarily allpeople 'cause it's plan specific, but
(29:12):
can you basically give us the 10,000 footview of what a mega backdoor Roth IRA
I'd say one clarifying point is I wouldcall it a mega backdoor Roth 401k, not
necessarily a mega backdoor Roth IRA.
So mega backdoor Roth 401k is eitheryour workplace retirement plan or maybe
if you're self-employed like myself,and you've set up your own individual
401k to have the following feature isthat there are contribution limits on
(29:36):
how much you can put into a workplaceretirement plan, such as a 401k.
So it's gonna be 23,500 I believe for 25.
It goes up with inflation eachyear, and then you have a catch
up contribution of 70 five hundredif you're over the age of 50.
So, that's the most you can put intoa workplace retirement plan, right?
Whatever 401k you might have with youremployer as called an employee deferral.
(29:59):
Now then your employer, theycan put in an amount as well.
Maybe it'll be $0, maybe it'll befixed amount, maybe it'll be a match.
Maybe it'll be a percent, but theycan make a contribution as well,
and they can do that up to, I wannasay it's 46,500 for this year.
Again, the numbers go up everyyear, so forgive me if I don't
have the exact figure memorizedbut I do have it written down.
(30:20):
And so that gives you an allin one contribution limit of
what's gonna be $70,000 for 2025.
So you could get up to $70,000 into yourworkplace retirement plan for the year
if your workplace plan allows additionalcontributions that go by many names.
These additional contributionscan be called after tax.
(30:41):
They can be called non-deductible.
They can be called voluntary after tax.
They can be called post-tax.
But it's a way you besides youremployer and besides the employee
deferral of 23,500, a way you canget more money into that plan.
And so if your plan offers this feature,then you can up to 70 grand, not
including ketchup contribution into yourworkplace retirement plan each year.
(31:02):
And that's big money, right?
That's 70 grand.
That's gonna be a lot morethan just that 23,500.
This is something I do for my ownindividual 401k, individual 401k
for self-employed folks, right?
And I can put 70 grand, into myindividual 401k because it allows
those after-tax contributions.
Now to keep going a littlemore geeky on the tax code.
Once you make those after-taxcontributions, you don't necessarily
(31:25):
wanna let them just sit there asafter-tax contributions, because if
they just sit there and they growthen the growth on those after-tax
contributions becomes taxable.
It creates tax deferred dollars.
And so ideally what you do is youtake those after-tax contributions,
which you never took a deductionfor because they are after tax, and
then you convert them to Roth, andnow all those dollars grow tax free.
(31:49):
Right?
So imagine making a $70,000contribution into your 401k and it
grows tax free for your entire life.
So a pretty appealing strategy.
It's pretty complicated.
Again, if you're self-employed,you can set this up on your own
individual 401K a little bit more work.
The off the shelf offerings of prototypeplans that you get over trap or Fidelity
they're not gonna have this baked intowhat you can get with them directly.
(32:12):
You'll have to use a third party toadd these additional features to add
the after-tax contribution featureand the In-Plan Roth conversion
feature to your individual 401k.
So that's if you're self-employed.
But if you're working at a really bigcompany with a really sophisticated 401k,
they're gonna have this feature, right?
So big tech companies have thisFacebook, Google Apple they already
have this feature in their 401k.
(32:34):
If you got a little mom andpop dentist operation with
their 401k run by John Hancock.
Probably not, you're almost certainlynot gonna have this feature in there.
That's not to say you can go toyour boss and be like, Hey boss, I
found a way that you can save a lotmore money into our workplace 401k.
I have worked with folks in thepast in setting these sort of
features up with the workplace.
(32:56):
401k K plan.
There was a dermatology practice.
They had a simple IRA, had highfees, had lower contribution limits.
So we worked together.
We went to Vanguard.
We set up a workplace 401k that hadthese after tax contribution features
as well as In-Plan Roth features thatnow, the place can save a lot more money
in that plan and at lower cost too.
so obviously that is, great maneuverfor high income earners that still
(33:18):
want to get some tax benefits.
Now, I was a modest income earner,80,000 ish or whatever before I retired,
so I couldn't exactly do 70,000.
However, I'm the consummatecurious, do it yourselfer.
So there's a couple years whereI did do that Mega backdoor Roth.
I was with a company, it wasn't theGoogle or the Facebook, but it was
a pretty big company that's in thes and p 500 and they did allow it.
(33:41):
If you're a high income earner, you'rewanting to try to get more into those tax
advantage accounts, this is ideal for you.
You just have to go to youremployer for the 401k or whatever
and see if they offer that.
But that is tremendous.
Something I had never heard ofbefore, but when I heard about it,
I'm like, you know what, I'm gonnasee if it works for my company.
I only got a couple thousanddollars in there, whatever.
(34:02):
But it, it does work andmy company did offer it.
Great maneuver for higher income earners.
so other terms that you mentioned therethat I think are important for our
audience to understand more granularlyare something like tax loss harvesting
and tax gain harvesting that youtalk about in your tax strategies.
Can you take us through briefly whateach of those is to pique the interest
(34:23):
of our audience, to dig deeper?
first I'll say the sample planson my set are a little bit old.
So one, they don't necessarily reflectall of my current updated philosophies
when it comes to personal financeinvesting, tax planning et cetera.
And then also my currentwriteups are a lot longer.
Depending on how much folks wannaread, they can bear that in mind.
(34:43):
Tax loss harvesting, it'spossibly a double-edged sword.
So I'm not as bullish on taxloss harvesting as when I
initially wrote those write-ups.
Yes, you can save some taxes todaybut that might be creating a larger
lifetime tax bill for you in the future.
It's gonna depend on your circumstance.
Now, if you've got more money thanyou're possibly ever gonna spend
(35:04):
and your heirs gonna inherit it andthere's gonna be no future tax law
changes and that's just Then maybetax loss harvesting can make sense.
It's gonna allow you to save sometaxes today that will never have to
be repaid if you're possibly gonna bespending that money later in the future,
I would think twice about tax lossharvesting today because yes, you save
(35:27):
some taxes today, but as I mentionedyou might pay those taxes back later.
And moreover, you might even paythem back at a higher tax rate.
Taxes right now are if your long-termcapital gain taxes are effectively
on sale relative to recent history.
So I would be very thoughtful aboutdoing tax loss harvesting today.
(35:48):
Michael Kitsis wrote areally great post about this.
Perhaps we can have you guys link to itin the show notes talking about think
twice about doing tax loss harvesting.
Tax gain harvesting is the opposite.
If we're in a low tax bracket,maybe it makes sense to increase
our basis 'cause that can help saveus on some taxes in the future.
I'm gonna sell this position todayat a gain, but the gain is not gonna
(36:09):
be taxable such a low tax bracket.
That's gonna be the case whenlooking at your federal taxes.
But you want to bear inmind state taxes too.
So if you're in a state, thatdoes have state income taxes.
I would also be thoughtful aboutdoing tax gain harvesting today.
But if you're in a state wherethere are no state income taxes,
that certainly makes it a strongercase for tax gain harvesting if
(36:29):
you're in a lower tax bracket today.
And you expect to needthis money in the future.
that was helpful.
Yeah.
Can you just for our audience too, takeus through a little bit of the mechanics,
because there are some specific mechanics.
It sounds sexy, tax loss harvesting, butthere's mechanics that you have to go
through in order to harvest the loss.
Can you just take us through the processthat people have to watch out for?
(36:50):
It's rather complicated which iscertainly another reason why you
don't necessarily want to jump intoit as maybe we'll talk about later.
I've got a huge bias forespecially investing simplicity.
So tax loss harvesting isI've got an investment.
I bought it at a hundreddollars, market's down.
Now the investment is valued at right?
So I can sell it at 90 today.
(37:12):
Hey, now I've got a $10 loss onmy taxes that's gonna help save
me taxes on my annual tax bill.
But now our problem isyou got $90 in cash.
You no longer have investment exposure,so you need to reinvest that 90,
you need to buy investments again.
Now, if you buy pretty muchthe same investment, IRS
says no, you can't do that.
And so now you don't have theability to write off that loss,
(37:33):
that's called a wash sale rule ifyou want to be a real nerd about it.
So how do you get aroundthis wash sale rule?
And again not tax advice foreducational purposes only secret
or tax professional before makingdecisions is you wanna buy an investment
that's not substantially identical.
So if I've got V-T-S-A-X,for example, vanguard's low
cost broad market index fund.
(37:55):
I'll sell that and then I'llbuy I XUS instead another low
cost broad market index fund.
I'm sorry, IXUS that's the internationalvariety . Let's do iShares.
Total U.S. I've got themutual, there we go.
ITOT, right?
There's a ticker for that one.
So this is gonna maintain myinvestment exposure, but I
still get to have my tax loss.
(38:17):
Now the catch is nowmy basis is $10 lower.
Right now it's 90 andinstead of a hundred.
So if I ever sell it at a hundred whenI need cash, now I've got that $10 gain.
And if I'm in a higher tax bracketwhen I do that the tax I was harvesting
would have been a bad decision.
So it can get prettytricky pretty quickly.
The other thing you wanna bear in mind isthat, if you're still earning, if you're
(38:39):
not yet retired and we're still investingand saving regularly that means that
you're regularly buying VTSX, for example.
So if we're selling VTSX from one shareof it, and then our automated investing
program is buying it the next day, boom,we've just triggered the wash sale rule.
So if you're making ongoingcontributions tax loss harvesting
(39:00):
gets even more complicated.
You've gotta find other funds to investin 'cause the wash sale rule can extend
as much as 60 days from the date of sale.
So pretty complicated strategy.
Cody Garrett frames it prettywell return on hassle, right?
Is the juice worth thesqueeze on this one?
I would say probably not.
a lot of the do it yourselfers I workwith really enjoy the nitty gritty
(39:23):
and the investing minutiae and reallytry to optimize as much as possible.
And that's why they might be interestedin a lot of these things as much as I
try and sometimes talk them out of itencouraging them to keep it simpler.
Yeah.
And those are just brokerage accounts.
So if you have 401k retirementaccounts, wash sale rule, tax
law, none of that matters for taxadvantage, retirement accounts.
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