How to Eliminate the Two Biggest Sources of Financial Stress
Episode Stats
Summary
Jared Dillian is a former trader for Lehman Brothers, the editor of the Daily Dividend, a market newsletter for investment professionals, and the author of No Worries: How to Live a Stress-Free Financial Life. In this episode, Jared talks about the two biggest sources of financial stress: debt and risk, and how you can eliminate the stress they can cause.
Transcript
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Brett McKay here, and welcome to another edition of the Art of Manliness podcast.
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There are different philosophies one can have when it comes to money.
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Jared Dillians is built around eliminating as much anxiety around it as possible,
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so you hardly think about money at all. Jared is a former trader for Lehman Brothers,
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the editor of the Daily Dirtknapp, a market newsletter for investment professionals,
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and the author of No Worries, How to Live a Stress-Free Financial Life.
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Today on the show, Jared talks about the two biggest sources of financial stress,
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debt and risk, and how you can eliminate the stress they can cause. We discuss how three
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big financial decisions, buying a car, buying a house, and managing student loans,
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ultimately determine your financial health and how to approach each of them in a stress-eliminating
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way. We also talk about how to minimize risk by creating what he calls an awesome portfolio,
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a mix of assets that has nearly the return of the stock market with half its risk,
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and Jared shares whether cryptocurrency fits into his No Worries financial philosophy.
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After the show's over, check out our show notes at awim.is slash no worries.
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So you write about investing in personal finance, but you started off your career
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in the military, specifically the Coast Guard. How did you go from serving in the Coast Guard to
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working for Lehman Brothers and then writing about investing?
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Well, so when I graduated from college, I graduated from the Coast Guard Academy.
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I was stationed on a Coast Guard cutter out of Washington State, and I knew within about a year
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that it wasn't for me. And what I was really interested in was writing. There was one bookstore
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in town. I was reading a bunch of literary magazines. I wanted to get my MFA and teach writing and write
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short stories. So that was my plan. And I called up my mom and I said, Mom, I have a plan. I'm going to
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be a writer. And she said, that is the dumbest idea I have ever heard. So she recommended that I make
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some money first. So I also was interested in finance. And I started really getting interested
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in finance around age 23. And I applied to business school. I went and got my MBA at the
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University of San Francisco. My first job in the markets was on the floor of the Peacoast Options
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Exchange in San Francisco. And I went from there to Lehman. I was head of the ETF trading desk at
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Lehman. And then ultimately, I came full circle. I started writing a financial newsletter. And I
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published my first book in 2011. Okay, I love it. So mom said that's a bad idea. But then you found out
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a way to show up mom. That was a great idea, mom. And I actually ended up getting my MFA last year
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at the age of 49. And it's funny how you got that job. You talk about it in your book. We're going to
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talk about it today. The book is called No Worries. The job at Lehman. You just kind of showed up for
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that. It happened kind of by accident, but kind of not. Well, I mean, I was interviewing at pretty much
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all the banks. Lehman had a culture that I fit in with pretty well. You know, to say they were
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entrepreneurial would be an understatement. It was very scrappy sort of culture. And this idea that
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you would have this working class kid from the military that was smart and fast and motivated,
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I fit in perfectly at Lehman Brothers. It was the best place for me. And it was a great place to work.
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I mean, you know, the name Lehman is kind of odious because of what happened in the financial
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crisis. But I can tell you that the people I worked with was phenomenal. And it was just it was a great
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place to be. So in your new book, No Worries, this is a general personal finance book. You talk about
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investing, but it's just about finances in general, specifically how not to be stressed out about your
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money. I'm curious, was there a time in your life when you were under financial stress?
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There's really only been two times. And one of them was that when Lehman went bankrupt,
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you know, I had a lot of company stock that got vaporized, went to zero, lost about a half a million
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bucks with that. And also, you know, I was invested in the market and the market went down. So I got cut
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in half in the financial crisis, which wasn't catastrophic, but it did cause me a lot of stress.
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And there was another time in 2017, you know, I still trade, I invest for myself. And I got, I got
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myself in this trade, betting that Canadian interest rates would go down. And I was so confident that I
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put on this trade and just massive size. And then it went the other way. So pretty much for all of 2017, I was
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miserable. I was absolutely miserable. So really what I talk about in the book is the idea that
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there's two sources of financial stress. One is debt and the other is risk. And I've never really
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had any debt stress. I've always been very averse to debt, but I have had risk stress at a couple
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points in my life. What's life like when you're under financial stress?
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It's, you know, financial stress is one of these things that is avoidable. There's very few natural
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disasters. And the problem with financial stress is that it compounds other kinds of stress. So if you
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have marriage stress, if you have kids stress, if you have work stress, and then you throw financial
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stress on top of it, it makes everything worse. And during those periods of time, when I was
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experiencing financial stress, it consumed my thoughts. It was all I could think about. It was
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the first thing I thought about when I woke up in the morning. The last thing I thought about when I
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went to bed, it made me grumpy. It made me irritable. It made me difficult to be around. You know,
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those are the types of things that happen when you have financial stress.
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And it's the opposite of financial stress. You're just not even thinking about money at all.
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That is the opposite. And the goal really is to just not think about money ever, like ever. Like
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if you go out to lunch and it costs 25 bucks, you put down your credit card and you don't think about
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it. And it doesn't turn into this huge decision. Like at every point in your life, you just don't
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think about money. And it is the best place to be. So you mentioned the two sources of financial
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stress are debt and risk. And we're going to talk more about these here in our conversation.
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But why isn't not having enough money a source of financial stress? I mean, I imagine for some
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people who might be listening, they think, boy, I'm pretty stressed out. I've got this car repair I
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need to do. And if I don't get this done, then I can't get to my job, but I don't have the money.
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Why don't you think that's a source of financial stress?
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Well, one of the things I talk about in the book is this idea of an emergency fund. And
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about half the country doesn't have what I would call an emergency fund. And anybody of
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any income level can have an emergency fund. You save a couple hundred bucks a month. You
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do this over a period of a few years. You have an emergency fund. And the check engine light
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is no longer a crisis. Your cat getting sick is no longer a crisis. So in my experience,
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I've known a lot of people who are very limited means. As long as their basic needs are met,
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and that's a big caveat, as long as their basic needs are met, if they don't have debt and they
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don't have risk, even if they're living paycheck to paycheck, they're perfectly happy. And maybe you
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lose your job and then you have your unemployment for a while, but it's not catastrophic. It's not
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the end of the world. You have an emergency fund. Like people with not a lot of money can live without
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financial stress. On the other hand, you have Elon Musk, the richest guy in the world, who puts himself
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under massive amounts of financial stress. So he got a big loan to buy Twitter and he pledged his
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Tesla stock is collateral and Tesla went down 75%. And he almost like Elon Musk was close to going
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bankrupt, the richest guy in the world. And like I said, it's all man-made. This is a position that
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he put himself in. So the richest guy in the world can have lots of financial stress and people with
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no money can have no financial stress. It's not dependent at all on how much you make.
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Okay. So you can avoid some of the maybe potential stress from unexpected costs by having a financial
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emergency fund. But then you also talk about in the book, we'll talk about this too later on,
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also just increase your revenue, the amount of money coming into your life. And we'll talk about
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some ways that you can do that. But let's talk about, let's go back to these two stressors,
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these two big ones, debt and risk. Let's talk about debt. Why is, I mean, you kind of mentioned
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with Elon Musk, like how else can debt be a source of financial stress? Is it just that
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constant knowing that there's a bill that that's coming up and that bill can get bigger and bigger
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if you don't pay it down? Yeah, that's, that's exactly right. You know, look like there are people
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out there like Dave Ramsey who say that you should never have any debt ever and you should avoid it at
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all costs. It's hard to do. It's hard to live a life without debt. It's almost impossible to buy a house
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without debt. 90% of people finance cars, only 10% of people pay cash for cars. And unless you go to a
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community college or a very cheap school, it's tough to go to college without debt. So at some point in
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your life, you're going to have debt. It's really about how you manage it. But that stress, you know,
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like even for me, like a mortgage is a very, I don't want to say safe form of debt, but it's lower risk
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than other forms of debt. But even a mortgage can cause stress. And if you have a mortgage on your
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house, guess what? You don't really own your house. The bank owns your house. This happened to me
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about seven or eight years ago. I had a car, I bought a Toyota Highlander and I got a car loan
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from USAA and it was a five-year car loan. And once I got done paying it off, I got this envelope in the
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mail from USAA. And I opened it up and it was my title. And I said to my wife, I was like,
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why did they send, why do I have my title in the mail? And she said, well, the bank has it as long
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as you have a loan. And it occurred to me, if you have debt on a piece of property, you don't really
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own it, you know? So, you know, you should pay down your mortgage as quickly as possible because
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there is nothing better than owning a house free and clear where there is no encumbrance at all.
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Either the bank does not own it, you own it. And no matter what happens to you, whether you get sick
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or you get an injury or get laid off from work or something terrible happens, they cannot take the
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house away from you. They cannot take the car away from you. You don't have debt on something,
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you own it, not the bank. Well, that, okay, that idea of paying off your mortgage as quickly as
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possible, that's a hot take in personal finance world because you'll have people who argue, well,
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that's a dumb move because your home loan might be a low interest rate. You know, if you got it,
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you know, 10 years ago, 3%, 3.5%, they would say you'd be better off instead of paying off that,
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that loan, that mortgage, investing that because the return rate in the stock market is like seven or 8%.
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Why don't you buy that argument? So this is the number one question I get. I get this question
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all the time. And really it's, it's, it's a decision theory problem. So if you pay down a 4%
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mortgage, you earn a certain 4%. It's like making 4%. If you invest in the stock market, you earn an
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uncertain 9%, right? So do you want to earn a certain 4% or an uncertain 9%? And you know, the 9% return,
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you can have big up years, you can have big down years. In the down years, you're going to have
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losses and you're going to have debt. The point is that is the path that contributes to the most
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financial stress. And let's say, you know, once every 30 or 40 years, we have one of these bear
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markets where the stock market is down 50%, like that is going to cause you a massive amount of stress.
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The other thing I would add is, you know, I don't really look at things in terms of interest rates.
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I look at things in terms of dollars paid in interest. So the house that I'm living in now,
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I bought in 2015. I paid it off in 2018. Over the first three and a half years of the mortgage,
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I added up all the interest I paid. I paid $70,000 in interest over the first three years of the
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mortgage. And as you know, all the interest is front loaded. So I'm thinking to myself,
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$70,000 is a lot of money. What could I have done with that money other than paying interest?
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I could have taken vacations. I could have done something else. Who knows? But I paid $70,000
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in interest. So, you know, if you look at a car loan, that is a super long-term car loan,
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like an 84, 96-month car loan, then you are going to pay on a $60,000 car, you are going to pay $30,000
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or $40,000 in interest over the life of the loan. Interest rate doesn't matter.
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That puts things in perspective. Speaking of home mortgages, do you have any advice on
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structuring a mortgage? Is there an ideal mortgage you should get? And then with the paying it down
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quickly, are there some mortgages or some banks that penalize you for paying down early? Or is
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there certain ways to do that so you don't get hit with any fees that you might not know about?
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Well, first of all, in terms of buying a house, the US is the best country in the world because we
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have fixed rate mortgages for the most part. You can get an adjustable rate mortgage and those make
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sense sometimes. But in most places in the world, mortgage rates float, especially in Canada. And
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they're dealing with this right now. Interest rates went up a lot. Houses were already very expensive
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and Canada is suffering right now because of interest rates going up. So we have fixed mortgage
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rates here in the US. You can get a 15-year mortgage or a 30-year mortgage. 15-year mortgages
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are generally better. The payments are bigger, right? So you have to be able to afford the cash flow
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on the payment, but you're paying a lot less in interest and you're going to own the house a lot
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quicker. But if you want to get a 30-year mortgage, what I say is that you should be able to afford
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a 15-year mortgage and you can still get a 30-year mortgage. So you should at least be able to afford
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the 15-year mortgage. If you can, it means you're buying too expensive of a house. And in terms of
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prepayment penalties, prepayment penalties are very rare in the United States. Most conforming
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mortgages don't have them. You know, what I tell people is review the loan documents before you sign
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them. Ask the banker straight up, are there any prepayment penalties? Prepayment penalties only
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exist on about 2% of mortgages in the United States. What about down payment? Is there an ideal
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number or percentage you recommend people having for a down payment on a home? Well, you should never put
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down less than 20% and ideally you should put down as much as possible. You should put down as much as
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possible. Having lots of equity is a good thing. In the mortgage interest, mortgage industry, they have
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this concept known as LTV. An LTV is loan to value. So if you put down a 20% down payment, you have an 80 LTV.
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If you put down a 35% down payment, you have a 65 LTV. The higher the LTV is, the more likely that
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mortgage is going to default. Because if you don't have a lot of equity in the house and something
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goes wrong and you can't pay the mortgage, you'll just walk away. But if you have a lot of equity in
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that house, you are going to stay and find a way to keep paying that mortgage so your equity isn't
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stranded. All right. That makes sense. Another thing you recommend people do in order to reduce
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the potential stress of debt that comes with owning a home is not treating your home like an investment.
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How can that help? Well, it's funny. I'm in the process of selling my house right now and I'm closing
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in May. We have sort of an extended closing. And I own this house from 2015 to 2024 during a period of
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time when house prices went up a lot. So you would think I would get rich off this house, but I really
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didn't. I put a lot of money into it in terms of maintenance. I replaced the roof. I replaced the
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air conditioner. I replaced all this stuff, painted the house, power washed it. We sunk a lot of money
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into the house. And then at the same time, we're going to have to pay 6% real estate commissions
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on the way out, which is going to be a lot of money. So what I'm going to have left over is really
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not that impressive. A house is what you call a negative carry asset. A positive carry asset is
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like a stock or a bond. It's a stock that pays dividends. It's a bond that pays interest. You're
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actually getting money. But a house is negative carry. You're paying interest. You're paying
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property taxes. You're paying HOA fees. You're paying insurance. You're paying maintenance.
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It's not a great investment. But what I will say is houses are often the best investment for people
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because it is the only investment where they don't check the price of it every day. Like if you have a
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stock, let's say you own Google and Google's going up and down and up and down, you're watching it.
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And eventually you're going to get spooked out of the stock and you're going to sell it and you're
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going to stop compounding and it's going to continue to go up. A house, you don't have the price of it
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on your phone. You can't check it. You're going to live in the house for 10 years. So you're just
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going to forget about what it's worth and it's going to continue to appreciate without you looking at
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it. And that's why a house is not an investment. But for some people, because they can't sell it,
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And I imagine there's a lot of people who got in trouble in the past 15 years treating homes like
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an investment because they thought, well, I can buy this house thinking that it will go up in value.
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And then there's a bust. And then they're like, okay, actually I'm underwater now. And if they just
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thought of their home as just an asset that they used, they wouldn't have had that issue because
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they would have probably spent less on a home. Yeah. I mean, houses depreciate. You have to put
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a lot of money into them. We kind of have a culture of real estate speculation in this country.
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And what's interesting is, you know, the financial crisis killed it for seven or eight years and then
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it kind of came back. But yeah, a lot of people, you know, buy houses to speculate and it's not really
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a good idea. We're going to take a quick break for your words from our sponsors.
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And now back to the show. So you mentioned another big purchase that often requires a loan,
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cars. Any ways that people mess up car buying that causes financial stress due to debt?
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Well, the way people get in trouble with cars is they put way too much emphasis on what brand of
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car they're buying, how that fits into their identity. You know, they think of themselves as
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somebody that drives a BMW or a Mercedes or something like that. It doesn't really matter.
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So the capacity utilization of a car is 4%, okay? Which means that if you had four people in the car
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driving 24 hours a day, it would be 100%. But you have one person in the car, you drive it a half hour
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to work, it sits in the parking lot, you drive it a half hour home by yourself, it sits in your driveway,
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you're only using it 4% of the time. It just does not matter. It just does not matter. It's a way to
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get from A to B, right? So in the book, you know, I talk about, yes, you could buy a used car, but that's
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harder nowadays, because used car prices have gone up a lot. And also, you're kind of tempting fate with
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maintenance issues and stuff like that. So I'm not really a big fan of buying cheap used cars.
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I like buying new cars that are cheap, that will last forever. So Toyotas in particular,
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I have owned Toyotas my entire life going back to 1995. I've owned like five different cars.
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They're cheap, they last forever, they don't have maintenance issues. I have never had one not start
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unless I ran the battery down, and they're terrific cars.
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And then you also in the book, you have like a step by step guide for buying a car.
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This can be really useful, especially if someone hasn't gone through the car buying process,
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it can be intimidating, because there is this asymmetry of information, right? You're going
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in, you might not know anything about the price of the car, the finances involved in the car,
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the salesperson does, and they do that, that schtick where they're like, well, I got to go talk to
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the guy up in the booth. And, you know, it creates more intimidation, but you offer some guidance on how to,
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how to manage that. Any, any big takeaways from that and how to manage that negotiation process?
00:22:02.560
Well, at a minimum, you need to do 10 minutes worth of homework. You need to know what your
00:22:07.160
trade-in is worth, which you can look up in a second on Google. And you need to know what the
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new car is worth. So if your trade-in is worth $11,000 and the new car is $40,000, then you're
00:22:19.780
going to have to write a check for $29,000. And if you go in there and you're talking to the
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salesperson and they give you some number that just doesn't make sense, then you have to start
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asking questions, you know, but like you said, there's asymmetric information. They have information
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on incentives. They have information on maintenance packages. They're going to try to extract as much
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value as possible out of you. And you don't really know how to handle that. But like I said,
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the minimum amount of research you need to do is on the value of your trade-in and the value of the
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new car. And also you recommend people when they are buying a car to not only consider the price
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that you're paying for that car to acquire it, but also like a home, you have to take into account
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there's other costs that go into owning a car, maintenance, potential accidents, insurance,
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et cetera. And you need to include that in how you think of how much a car costs.
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Yeah. And what I say in the book is that you should spend no more than 10% of your income
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on transportation. And that includes gas, which for most people is about $3,000 a year.
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That includes insurance, which is maybe about $1,500 a year, but it also includes depreciation.
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So if you have a $40,000 car, you can depreciate it over 10 years, $4,000 a year. So you're going to
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have $4,000 in depreciation per year, plus $3,000 plus $1,500 is $8,500 a year, which is what you're going
00:23:48.480
to be spending on your car, which means in order to own that car, you need to be making $85,000 a
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year. So 10% of your income is spent on transportation. Another big purchase that people
00:24:01.060
will make during their lifetime that you probably have to take out debt for is college education.
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Anything that people can do to reduce the stress of debt that comes from getting a college education?
00:24:12.360
Well, you know, college education, college financing is, it's really terrible what's happened.
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So basically the biggest problem that we have today is that there was a law signed in 2009,
00:24:26.480
which allowed something called income-based repayment plans. So let's say you spent $100,000
00:24:33.460
going to school, you borrowed $100,000 and your payment would ordinarily be $1,200 a month.
00:24:40.300
But what the government does is they say, look, like you're making $45,000 a year. So we're going
00:24:46.040
to means test this and you only have to pay $300,000 a month. And a lot of people say, cool,
00:24:52.060
my loan payments are only $300,000 a month. But the problem is, is that you're not paying the full
00:24:58.460
payment and the part that you're not paying is being added onto the back of the loan. So I'm sure
00:25:05.180
you've had this experience online or on Twitter or something where you see somebody complaining
00:25:09.980
about their student loans. And they say, I started out with $70,000 in loans and 15 years later,
00:25:16.440
I have a hundred thousand and this is terrible. So what's going on here is that they signed up for
00:25:23.340
an income-based repayment plan. They're not paying the full amount and the amount of the loan is
00:25:28.600
growing over time. So if you are under an income-based repayment plan, you have to pay more.
00:25:34.540
You have to aggressively pay down the loan. So even if you only owe $300,000 a month,
00:25:40.000
that's a check you have to write. You need to be paying $600,000 a month or $800,000 a month
00:25:44.560
just to pay that loan balance down. So the takeaway there, pay down your loans as quickly as possible.
00:25:51.640
And you got to remember too, if you're on one of those income-driven repayment plans for your
00:25:55.940
student loans, you may not only not be paying down the principal, you may not even be paying off the
00:26:03.160
interest on your loan each month or the full interest. So the interest just keeps accruing,
00:26:07.460
your debt will keep growing even though you're making monthly payments. And the thing about
00:26:11.680
student loan debt, you can't discharge it in bankruptcy. You're stuck with it until you're
00:26:16.280
dead. Yeah. I mean, the goal should really be to pay it off in five years. And you have to think
00:26:21.860
about this before you go to college. You have to know what you're going to spend and you should have
00:26:26.240
some idea of what you're going to make when you graduate. And if you can't pay it off in five years,
00:26:31.160
then you need to go to a cheaper school. Okay. So the big takeaway for reducing the
00:26:36.120
stress of debt, you have to take on debt. There's purchases in life you can't make without debt. It's
00:26:40.560
pretty much impossible to do, but take on as little as you can and then pay it down as quickly as
00:26:46.020
possible. Would that be kind of the two big principles? That's exactly right. Yeah.
00:26:51.100
But the thing is when people hear that, they think, okay, I got to aggressively pay down my debt.
00:26:55.600
In order to do that, I got to get really frugal. I got to scrimp and, you know,
00:27:00.340
eat beans and rice. But in the book, you talk about this whole idea of being hyper frugal,
00:27:06.600
extremely frugal in order to reduce financial stress actually just makes you more financially
00:27:13.000
stressed. How so? Well, what we have in the United States is we have big personal finance. We have a
00:27:21.200
personal finance industry. Okay. Whether it's Dave Ramsey or Susie Orman or whoever else,
00:27:28.080
the millionaire next door book, all this stuff, we are taught that the path to wealth is through
00:27:36.200
cutting expenses, right? Like if you live in a 1200 square foot house, if you have one $99 suit,
00:27:44.700
if you buy a 14 year old Chrysler Sebring that smells like cigarette smoke, if you do these things and you
00:27:52.600
live this life of austerity, then you can get to a million dollars. And it's true. Like the math
00:27:58.200
checks out, you can get to a million dollars if you do this, but you are going to be miserable.
00:28:04.380
And it puts you in a position where you are obsessed. This is kind of what we talked about
00:28:09.920
at the beginning of the show. You are obsessed with money. Every financial decision becomes this
00:28:15.600
crisis or this huge decision. And it's a terrible way to live your life. So basically the whole
00:28:21.900
premise of the book is that the little things, whether it's lunch or coffee or clothes or stuff
00:28:27.560
like that, the little things do not matter at all. It's the big things. It's your house, it's your car
00:28:35.600
and your student loans, and it's really nothing else. And if you get those three things, right,
00:28:41.220
if you don't screw up those three decisions, then you can spend $25 on lunch without breaking a sweat.
00:28:48.660
It's really not that hard. Yeah. I imagine there's some people out there who get off on
00:28:53.700
the austerity. They actually enjoy clipping coupons. They get a rush out of it, but they might be making
00:28:58.620
their family miserable. It stresses their kids out because they see mom and dad just obsessed with
00:29:03.540
money all the time. I grew up in Connecticut and Connecticut culturally is kind of an interesting
00:29:09.660
place because, you know, Connecticut's are known as nutmeggers. It's kind of a derisive term in
00:29:16.900
Connecticut. A nutmegger is somebody who is cheap and clips coupons and stuff like that. And I grew
00:29:22.540
up in a family like that. Like we used to get a piece, if we got a piece of mail, like we used to
00:29:27.380
check to see if the stamp was hit by the canceling stamp. And if we got a piece of mail where the stamp
00:29:34.420
wasn't touched, then we would cut it out and save it and glue it on another envelope. And it was the best
00:29:40.500
thing in the world because we saved 29 cents. Like that was the environment that I grew up in. It just does
00:29:47.000
not matter. These things do not matter at all. Okay. So being too austere, that can make you stress out
00:29:54.200
even more when you're trying to reduce financial stress. So what should the mindset towards money be that
00:29:59.920
you're striving for? It's really about balance. It's about balance. Just as it's possible to spend
00:30:06.920
too much money, it is also possible to spend too little money. Now, if you spend too little money,
00:30:13.600
you're never going to go bankrupt. You're not going to have these financial problems.
00:30:17.640
But what's going to happen is it's going to harm your relationships with other people.
00:30:22.380
And I'm sure you know somebody in your family or a friend that is really, really cheap
00:30:26.580
and they never take out their wallet to pay the bill for dinner. And they don't give gifts at
00:30:32.060
Christmas and they do all this stuff. And they're just hard to be around. It's hard to have a
00:30:36.060
relationship with these people. So on one hand, the people who spend too much, they can affect their
00:30:42.240
financial well-being. The people who spend too little, it affects their relationships with other
00:30:47.680
people. So how do you know? Okay. So let's say someone's listening and maybe they've got a mortgage,
00:30:54.040
they've got a car payment, maybe they're paying down some student loans. How can you take this
00:30:59.340
approach to money where you're not focusing so much on the little things like giving up a coffee
00:31:05.180
or whatever, while still trying to aggressively pay down the stuff you've got on your plate?
00:31:11.200
Well, I will say that there's two phases of life. And in the first half of your life,
00:31:16.840
you're in accumulation mode where you're working, you're saving, you're paying down debt,
00:31:22.200
and you're investing. And you do that till about age 45. And then at age 45, you're in decumulation
00:31:28.940
mode. You're selling stocks, you're selling bonds, you're selling assets, you're spending the money,
00:31:35.040
and you're having a good time. So there is a period of time in your 20s and 30s when you do have to
00:31:42.860
undergo some austerity, but that's the right time to do it. It's much easier to do austerity in your
00:31:50.620
20s and 30s than it is in your 60s and 70s. I think we all want a comfortable retirement.
00:31:56.360
And the saying is, you have a choice. You can either eat ramen in your 20s or you can eat Alpo
00:32:03.240
in your 70s. Yeah, I'd rather eat the ramen in my 20s. So the overall goal is just to have a healthy
00:32:10.580
relationship with money. Someone who's super frugal and someone who's a lavish spender, they probably
00:32:16.620
have more in common than you think because they're both thinking about money all the time.
00:32:22.660
When you're younger, you might think about cutting spending more. But if you get those
00:32:26.860
big financial decisions right, so like you said, college loans, car, house, you can eventually get
00:32:33.700
to a place where you don't have to think about money so much. But you also say that in every phase
00:32:39.400
of life, instead of just thinking about cutting expenses, we should also be thinking about increasing
00:32:45.640
our income. In your experience, what are the biggest obstacles for making that happen? What
00:32:50.960
holds people back from making more money? I think the reason that people don't do it
00:32:56.740
is that it never occurs to them to do it. Like they've never been told that. Nobody has ever told
00:33:02.360
them, look, like if you have this problem where you don't have enough money, there's two solutions
00:33:08.360
to this. One, you can just cut expenses, but two, you can grow revenue. There's a bunch of things you
00:33:13.280
could do. You could get a raise. You could switch jobs. You could go back to school to get another
00:33:20.740
job that pays more. You can do the passive income thing. You can be a landlord. You can start a
00:33:26.480
business. These are all things that you can do. Look, even an extra $10,000 or $15,000 a year for a lot
00:33:33.560
of people makes a huge difference. And by the way, making more money is a lot more fun than cutting
00:33:40.660
expenses. Cutting expenses sucks. It's the worst. That austerity is terrible. But if you were to get
00:33:47.980
a side hustle and make an extra 10 or 15 grand a year, that is actually fun. And you put the stuff
00:33:54.180
to the test. Like when you were in the Coast Guard, you were like, I'm not making much money. I need to
00:33:58.900
make more money. I'll go get my MBA. And then a couple of years later, you're making lots more money
00:34:05.320
than you were in the Coast Guard. Yeah. About 20 times more. Right. So yeah, I think that's a good
00:34:12.100
reminder. If you're feeling pinched in your wallet, yeah, there's a place for cutting expenses. Maybe
00:34:18.220
there's stupid stuff you're spending money on. You probably shouldn't spend your money on. Do you
00:34:21.260
need all those subscriptions? But always think about, well, how can I make more money? And there's
00:34:25.660
different ways you can do that. You ask for a raise. We had a podcast with Noah Kagan, where he talked
00:34:30.840
about how you can start a business in a weekend, in 48 hours. And you can make a decent chunk of
00:34:35.340
change that can change your life by spending a little bit extra time on the weekend coming up
00:34:40.600
with a business. There's 24 hours in the day. We work about eight hours. We sleep about eight hours.
00:34:46.900
That's eight hours left over. You can accomplish a lot with that time. So we talked about the stress
00:34:53.240
that comes from debt. Let's talk about the stress that comes from financial risk. What can people do to
00:34:59.100
mitigate stress from risk in their lives? Well, what we have in the U.S. today, the conventional
00:35:06.780
wisdom is that you should put all your money in the S&P 500 index fund and just dollar cost average
00:35:14.560
that over time. It returns 9% a year. And when you retire, you're going to have a few million bucks.
00:35:20.300
That's the conventional wisdom. That works, but it can also cause you a lot of stress along the way.
00:35:28.320
If you invest in the stock market, you get the returns of the stock market, which are very good,
00:35:34.900
but you also get the volatility of the stock market. And the stock market's very volatile.
00:35:41.100
You know, in any given year, it can be up 15 or 20% or down 15 or 20%. And that volatility is going
00:35:49.040
to cause you a lot of stress. It's going to cause you a lot of stress. You know, over the course of a
00:35:54.700
40 or 50 year investing career, the market is going to go down 10% about 20 or 25 times.
00:36:01.940
It's going to go down 20% about seven to 10 times. And it's probably going to go down 50%
00:36:09.560
at least once. There is going to be one time in your life where you have major pucker factor
00:36:15.860
and you are freaking out and you have watched half and God forbid this happens right before
00:36:22.320
you retire, but you've just watched half of your net worth just get vaporized. Like that is a huge
00:36:30.820
amount of stress. I came up with a solution to that called the awesome portfolio, which is stocks,
00:36:38.020
bonds, gold, cash, and real estate and 20% proportions. And the interesting thing about that portfolio is
00:36:45.320
it gives you almost the return of the stock market, but with about half the risk. And I don't know why
00:36:52.580
everybody doesn't want to do this, right? Just you're returning 1% less, but you get half the
00:36:59.240
volatility of an 80-20 portfolio. It's really a magic bullet. Have you done like Monte Carlo
00:37:05.120
simulations on this thing? Like is it stood the test, the stress test? Yeah, absolutely. But the
00:37:11.480
interesting thing about it is if you invest in the awesome portfolio, about 40% of the time you're
00:37:17.840
going to regret it because about 40% of the time the stock market is going to beat the awesome portfolio
00:37:25.100
by 10% or more. But about 20% of the time you're going to be really happy you did it because the
00:37:32.400
awesome portfolio is going to beat the stock market by 10% or more. And those are the years that really
00:37:38.040
counts because that's when you're tested. That's when you have those big bear markets.
00:37:42.500
Like just for example, in 2008 during the financial crisis, the stock market was down 38% that year,
00:37:49.220
but the awesome portfolio was only down 9%. You barely would have even have felt it. And the worst year
00:37:55.980
in the history of the awesome portfolio is down 12%. So you look at this and you're like, okay,
00:38:01.400
I get almost the return to the stock market, half the volatility, and my worst year is 12%.
00:38:07.780
You know, where do I sign up? Why cash? Why keep so much in cash?
00:38:12.560
Well, I used to get that question a lot before interest rates went up when interest rates were
00:38:17.460
zero. You know, now you can actually get 5% on cash, but that, so that makes a lot of sense.
00:38:22.900
You have cash for two reasons. One, it stabilizes the awesome portfolio and reduces the volatility.
00:38:29.640
Two, you should have 20% of your money in cash all the time anyway. Like being fully invested is way
00:38:37.120
overrated. You want to have cash because of the option value of cash, because cash is an option
00:38:43.520
to buy something cheaper in the future. Right. So if you see a good deal on a car, you're like,
00:38:48.740
you've got the cash to do it. So you're going to take out a loan.
00:38:52.420
Yeah. Do alternative investments like art or cryptocurrency play a role in an awesome portfolio?
00:38:57.800
Well, I get the crypto question a lot. I mean, the problem with putting crypto in the awesome
00:39:04.080
portfolio is, first of all, if you backtest it, it looks great because crypto has gone straight up
00:39:10.800
and anything that goes straight up is going to improve the Sharpe ratio of the portfolio. So it's
00:39:16.000
going to make it look better. But, you know, past is not prologue, right? The problem with putting
00:39:21.680
crypto in the awesome portfolio is that you're going to stare at it all the time. So even if you put 2%
00:39:27.040
of the portfolio in crypto, what is the thing that you're going to watch all the time? You're
00:39:32.320
going to be watching crypto, right? You're going to stare at it all day, even though it's only 2%
00:39:37.540
of your portfolio. And the purpose of volatility is to make people make stupid decisions. So the thing
00:39:44.360
about the awesome portfolio is, number one, it's not volatile. And number two, with the exception of
00:39:49.700
the stock market, none of the individual asset classes are volatile either. So none of it is going to
00:39:57.440
Yeah. So yeah, again, the goal is to not even think about your money.
00:40:00.760
Yeah. Well, tell me more about crypto. What's your take on crypto? It's so funny. I remember,
00:40:05.840
you know, four years ago, five years ago, everyone was like, oh, crypto, crypto, crypto. Then like it
00:40:09.920
went down or when stopped talking about it. Now everyone's talking about it again because
00:40:12.700
Bitcoin's, you know, at its all time high or whatever. What are your thoughts on crypto?
00:40:17.300
I have owned it a couple of times. I've made money one time and lost money one time. And
00:40:23.960
on balance, I've made money. I don't like it. It's too volatile. Like I am pretty risk averse.
00:40:31.120
I'm pretty conservative. And, you know, actually back in 2019, I bought a lot of Bitcoin. I bought
00:40:38.160
a huge amount and I sold it in 2021 and I killed it. I did really well. But the whole time that I owned
00:40:44.820
it, I just stared at it all the time. I was always pulling up the Coinbase app. Like it was just,
00:40:54.320
Yeah. You became like a coupon clipper, a reverse coupon clipper.
00:40:58.420
Yeah. Just constantly thinking about it. Well, Jared, this has been a great conversation.
00:41:01.700
Where can people go to learn more about the book and your work?
00:41:04.600
The book is on Amazon or any place you, I mean, it's on Barnes and Noble. It's everywhere.
00:41:10.620
My personal finance website is jareddillionmoney.com. Right on the landing page,
00:41:18.040
you can sign up for a free newsletter. You get my thoughts on personal finance every week.
00:41:22.580
You can follow me on Twitter at Daily Dirt Nap. And yeah, that's pretty much it. I just hope you
00:41:29.080
get the book. It's been a life-changing book for a lot of people.
00:41:31.900
Fantastic. Well, Jared Dillion, thanks for your time. It's been a pleasure.
00:41:36.660
My guest today was Jared Dillion. He's the author of the book,
00:41:38.940
No Worries. It's available on amazon.com and bookstores everywhere. You can find more
00:41:42.520
information about his work at his website, jareddillion.com. Also check out our show notes
00:41:46.140
at awim.is slash no worries. We find links to resources. We delve deeper into this topic.
00:41:50.800
Well, that wraps up another edition of the AOM podcast. Make sure to check out our website at
00:42:02.200
artofmanliness.com. We find our podcast archives, as well as thousands of articles that we've written
00:42:06.340
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00:42:09.760
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00:42:12.940
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00:42:16.560
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00:42:20.440
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