Afford Anything

Tag: financial freedom

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#631: Q&A: Is ChatGPT’s Portfolio Better Than VTSAX?

Jason’s analysis of his retirement plan shows that the simple path beats the efficient frontier. Is he right or is he missing something?

Minerva is worried about the impacts of tax inefficiency to her wealth. Are her investments properly located?

Scott feels frozen because he doesn’t understand the nuances of the efficient frontier. Where can he get a simplified explainer so he can start taking action?

Former financial planner Joe Saul-Sehy and I tackle these three questions in today’s episode.

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#629: Nick Maggiulli: The Wealth Ladder Has Six Rungs (and Most People Never Climb Past Four)

Here’s the thing about personal finance advice: what works when you have $10,000 won’t work when you have $1 million.

Yet most financial guidance treats everyone the same, whether you’re scraping together a $1,000 emergency fund or deciding whether to upgrade to business class.

Nick Maggiulli, author of “The Wealth Ladder,” joins us to break down how money strategies must evolve as your net worth grows. He’s mapped out 6 distinct wealth levels, each requiring different approaches to spending, saving and investing.

The levels start simple.

Level 1 covers anyone with less than $10,000 in net worth — that’s 20 percent of American households. Here, bad luck gets amplified. A flat tire that costs $200 could spiral into job loss and debt if you can’t afford the repair.

Level 2 spans $10,000 to $100,000 in net worth. Maggiulli calls this “grocery freedom” — you can splurge on the nicer eggs without checking your bank balance.

Level 3, from $100,000 to $1 million, brings “restaurant freedom.”

Level 4, the $1 million to $10 million range, unlocks “travel freedom.”

Getting beyond Level 4 — into the $10 million-plus territory — requires business ownership or extreme patience. Maggiulli calculates that even saving $100,000 annually after hitting $1 million takes 23 years to reach $10 million, assuming 5 percent annual returns.

The data shows income matters more than frugality, especially in the early levels. The median household income in Level 1 is $32,000, but in Level 4 it’s $197,000, and in Level 6 it reaches $4.3 million.

We discuss why homeownership dominates wealth in Levels 2 and 3, how investment assets become crucial in higher levels, and why many people in Level 4 choose “Coast FIRE” over the grinding path to Level 5.

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#627: Q&A: When Being Good With Money … Isn’t Good Enough

Jlyn and her husband are 20 years from retirement, but they’ve got their eye on a second home they’ll live in when the time comes. Should they make the purchase now, or keep saving?

Reese was recently laid off, and she’s struggling to choose between two financially responsible paths. Should she continue her long-term disability insurance? Or is it wiser to save money?

Kip’s youngest has finally graduated from college, and he’s looking forward to an early retirement. But, with the eyewatering costs of long-term healthcare, is this still a viable path? 

Former financial planner Joe Saul-Sehy and I tackle these three questions in today’s episode.

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#625: JL Collins Part 2: What Happens When You Don’t Need to Work Anymore?

What do you do when you’ve reached financial independence? JL Collins says it depends entirely on your spending rate, not just your net worth.

Collins joins us for part two of our conversation about what happens after you reach financial independence. He tackles the question of whether you should invest differently once you’ve “won the game.”

Someone with $5 million spending $100,000 per year sits in a completely different position than someone with the same amount spending $200,000 per year. The first person can afford to stay aggressive with stocks. The second person needs bonds to smooth the ride.

Collins walks through his withdrawal strategy using his daughter as an example. She stepped away from corporate life in her early thirties and now follows an 80-20 stock/bond allocation. 

She pulls dividends from both funds into her checking account, covering about 2.5 percent of her target 4 percent withdrawal rate. Vanguard automatically sells shares to cover the remaining 1.5 percent.

We cover Collins’ thoughts on the 4 percent rule, which he calls extraordinarily conservative. He references Bill Bengen’s research showing that 5 percent withdrawals succeed 86 percent of the time. 

Collins would take those odds to escape a soul-crushing job, especially since most financially independent people end up accidentally making money anyway.

We discuss the tension between frugal habits that build wealth – and learning to spend money once you have it. Collins flies first class, but he drives a basic car.

Collins explains why financially independent people often stay engaged with work — the problem was never work itself, but working without agency.

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#624: JL Collins Part 1: The Simple Path vs. The “Optimal” Path

JL Collins doesn’t know what the efficient frontier is. The author of “The Simple Path to Wealth” — the guy synonymous with VTSAX and chill — admits this right off the bat when we challenge him with advanced investing concepts.

Collins joins us for Part 1 of a two-part series where we skip the basics and dive straight into the complex stuff. We grill him on whether his simple approach actually beats more sophisticated strategies, and his answer might surprise you.

He concedes that Paul Merriman’s four-fund portfolio probably outperforms his one-fund approach mathematically. But Collins argues that execution trumps optimization every time. Most people can’t stick with complex strategies for 20 years, especially when those strategies require selling winners to buy losers – something that goes against human nature.

Collins prioritizes what works in real life over what looks good on paper. He calls index funds “self-cleansing” because they automatically rotate out failing companies and sectors while rotating in the new winners. You don’t need to predict which companies will dominate next – you’ll own whatever rises to the top.

The episode covers his thoughts on VTSAX versus VTI, international diversification, and why he’d rather put Tabasco than Cholula on his eggs — his quirky way of explaining personal preferences in nearly identical investment options.

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#619: Q&A: My Company Is Going Public and I Have No Idea What to Do – Plus, Should I Fire My Advisor?

Dave is no longer happy with his financial advisor, but he’s nervous about switching over to self-management after being completely hands-off for so long. What should he do?

An anonymous caller keeps hearing about the benefits of Cost Segregation for investment property. What is it? And should he apply this strategy to his recently acquired duplex?

Another anonymous caller is eagerly anticipating a windfall from his employer’s upcoming IPO. How should he prepare for this, and what happens if it fails?

Former financial planner Joe Saul-Sehy and I tackle these three questions in today’s episode.

Enjoy!

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#607: Q&A: Remember When Money Advice Came From Just One Book at the Library?

George is a worried baby boomer, wondering if today’s generation is drowning in the noise of today’s financial landscape. How does one find a balance between information and overload?

Heather is stunned by the notion that renting could make more financial sense than buying. Where she’s from, the numbers seem to always swing in favor of owning. What’s she missing?

Former financial planner Joe Saul-Sehy and I tackle these questions in today’s episode.

Enjoy!

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#601: Q&A: The Stock Market Sucks. Is Private Equity Any Better?

Nick and his wife have $100,000 to invest, but they’re worried about the volatility of the current stock market. Should they look into alternative investments such as private equity?

Even though Roth IRAs come with tax-free withdrawals in retirement, Josh is worried about his tax bracket going up and neutralizing the benefits. Is he right to be concerned?

The retirement portion of Cindy’s financial three-legged stool is set, and she’s now focused on her taxable brokerage. What investment strategy will allow her to be work optional in 10 years?

Former financial planner Joe Saul-Sehy and I tackle these questions in today’s episode.

Enjoy!

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#595: Q&A: The Scary Shift from Saving to — Gulp! — Actually Spending Your Money

Eva is finally closing in on her financial independence goals, but she’s grappling with how to make a smooth transition from accumulation to decumulation. What should she consider?

John has noticed a game-changing omission from recent discussions about traditional versus Roth IRAs. Is this as big of a deal as he thinks it is?

An anonymous caller is excited to convert his primary residence into a rental property. But he’ll only make a profit if he first sells some equities to pay down the mortgage. Is this a good idea?

Former financial planner Joe Saul-Sehy and I tackle these questions in today’s episode.

Enjoy!

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#593: Q&A: You Made a Money Mistake. Now What?

An anonymous caller is brooding over a mistake he made in 2023 when he decided to contribute to his Roth instead of a pre-tax account. How does he get over this?

June is annoyed that she triggered short-term capital gains and wash sales when she sold assets in her taxable brokerage last year. How does she avoid these issues in the future?

Zerai wants to add mid and small-cap exposure, but his 457 plan has a limited selection of mutual funds. What’s the proper way to select the best fund among the available options?

Former financial planner Joe Saul-Sehy and I tackle these questions in today’s episode.

Enjoy!

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Afford Anything