Katie:

Welcome back to the Rich Girl Roundup weekly discussion of the Money with Katie Show. I'm Katie Gatti Tassin, and on Monday mornings my executive producer Henah and I use this segment to talk through your questions, your money stories, your feedback, and more… right after a quick break.

Okay, before we get into it, this week's upcoming main episode is about how to make money in your relationship feel amazing, how to make progress with your significant other, and some of the most common pitfalls that couples experience with their finances. My guest is Ramit Sethi, everyone's favorite. Okay, onto the roundup. Henah, what is our question this week?

Henah:

So we have a little plot twist this week. So I'm going to read the question, but usually I have my little set of notes and Katie has her little set of notes about how we want to answer the question, but I actually don't have any because I'm going to answer these and react in real time.

Katie:

Yes. I'm going to spring this on Henah because I want complete unsuspecting co-hosting happening here.

Henah:

So I do have access to this week's question, which came from Rich Guy Ryan who said, “I'm writing to see if you have any advice on the best times to start investing in terms of how the market is doing overall. My girlfriend just got a raise and we made a plan for which funds to start investing in as well as open an IRA. But our question is, would the market seemingly always at all-time highs, is now really a good time to start or should we wait to see if there's a bear market ahead?”

Katie:

First of all, I'm going to pat myself on the back because I picked this question without thinking about the fact that this week's episode is about couples, and Ryan's question is about how he and his girlfriend should invest her raise. So you know what that's on subconscious content excellence, baby. That's on thematically relevant topics.

Henah:

Brava.

Katie:

Okay. I cannot tell anyone what to do with their money, so I will say this, please receive what I'm about to say as an argument to consider and not as capital F A Financial Advice. Ultimately, the risk that you assume by investing is your risk alone. I am not bearing that risk for you, so you have to do what you're comfortable with.

However, to begin, I want to read you, Henah, 10 headlines. Okay?

Henah:

Okay. Are they recent?

Katie:

I'm going to read you 10 headlines. Okay.

Henah:

Okay.

Katie:

Slate: “Yes, stocks could drop 50%.”

The Economist: “Overvaluation, the Evidence.”

Business Insider: “Market history is calling and it's saying stock performance will be crappy for another 10 years.”

MarketWatch: “Here's how you know the stock market is hugely overvalued.”

CNBC: “If you follow Warren Buffett's methodology, stocks are significantly overvalued.”

Business Insider: “A stock market crash of 50% would not be a surprise—or the worst case scenario.”

MarketWatch, again: “This is the most overvalued stock market on record, even worse than 1929.”

CNBC: “Any way you look at it, this stock market is overvalued, Goldman Sachs says.”

Bloomberg: “The world's most inflated investment could be US stocks.”

And finally, CNN: “Caution, US stocks have rarely been this expensive.”

Henah, how does this make you feel? What conclusions are you drawing right now about whether or not now is a good time to start investing?

Henah:

It's not looking so good. It sounds like this would be a horrible time to start investing, if everything is overvalued or if there's a, what did it say? 50% stock market crash?

Katie:

And that's not even the worst case scenario.

Henah:

Oh. That’s scary.

Katie:

According to Business Insider or whatever. Yeah. Okay. Well, every single one of those headlines is from 2014, 2015, 2016, and 2017. So when you were like, are they recent? I'm like, girl, don't blow my cover. Come on.

All of those articles came out 10, 9, 8, 7 years ago. You can do this exercise yourself. If you go to Google, you type in “stock market overvalued” and then any year you want, and then select news, you are going to see no shortage of articles that are warning you that the stocks are at all-time highs; they're overvalued; that you should exercise caution, to quote CNN. But in 2014, when the Economist said there was evidence things were overvalued, the market returned 11.39% that year. In 2015, when Business Insider predicted a 50% crash, it was only down 0.73%. In 2016 when MarketWatch called the market more overvalued than in 1929, it returned 9.54% for the year.

And in 2017, when CNN cautioned investors that things were too expensive, they went up by 19.42% more that year, and then they did fall by 6% the following year, but then they were up 30% the year after that.

So I don't say any of that to minimize the reality that the stock market is disconnected from reality in many ways, and I'm not even claiming crucially like please hear this, I'm not even claiming that it's not overvalued. It probably is. It almost certainly is. But I am saying that the most rational way to respond right now and to the last few decades of evidence is to assume that the stock market will spend more of its time in the future, higher than it is now, not lower, and the chances that it's going to be higher in the future are very strong.

Henah:

Sorry, I'm still shook on the ears and the returns that you were mentioning.

Katie:

I know I'm like anything to say before I keep going, I have more, but yeah, if you have any other thoughts?

Henah:

No, I'm just shocked because I guess I would've assumed that those headlines were from this year because it is all-time highs that we just keep seeing. And inevitably, as we've talked about in the index fund episode, it cannot go up forever. Or I mean, I guess it can, but the rich will just keep getting richer. So I'm still really shocked by the…

Katie:

And that’s on wealth inequality. Make wealth inequality work for you.

Henah:

I'm just still shocked that these are 10-year-old headlines. Okay, I'm sorry.

Katie:

I know, I know. But here's the thing. So the questioner mentioned that they wanted to open an IRA, which tells me that we're talking about a very long-term outlook. We're talking about a retirement account, and in that case especially, the best time to start investing is as soon as you have investible cash.

Henah:

10 years ago. Just kidding.

Katie:

One of my favorite examples of this to point to is, okay, are we at all-time highs or near them? Yes. Is it overvalued? Probably. Probably, yeah. But if you look back on, I don't know, the last 25, 30 years and you go, when would've been the worst time to invest? It was probably—

Henah:

2008?

Katie:

Close. I would consider the worst possible timing of the 21st century to actually be right before the stock market crash in 2000. If you invested a $10,000 in a total stock market index fund in 2000 around the peak, I think the peak was in March, and then you experienced the lost decade that followed, which included the Great Financial Crisis, and then a couple years later, we have a global pandemic. How much money do you think you would have today if you invested $10k at the peak in 2000 before the, I guess, three major financial crises that followed?

Henah:

Well, you just said returns of some of those middle years where it got a little bit better, but I also know things went down, so maybe I'll even it out and say $25,000, $30,000?

Katie:

$62,290.

Henah:

Oh.

Katie:

You would've gotten an average annual return of 7.64% even if you had invested at the peak in 2000 before the .com bubble burst.

Henah:

Wow.

Katie:

Now your returns would've been flat or down until late 2010, so it probably would've felt and looked like a bad decision for a long time.

Henah:

Yeah, yeah, yeah.

Katie:

And again, not to minimize the, I guess, monetary environment or fiscal policy environment that we're in: I think someone could say, well, colloquially speaking, the money supply has really expanded since then. Yes, it has. And a lot of those gains have been captured by shareholders in the stock market. It's kind of like a huge critique that we constantly make on this show is that the money is flowing into assets and not into the hands of the working class or the middle class. So is that money ill begotten? Yeah, probably.

But the returns are still legitimate in that sense that someone would actually have around $63k today if they had invested $10k back then.

So I want to look for a second though at a more diversified portfolio, just to have sort of a counterfactual of if you had done 40% US stocks, 20% international stocks, 30% US bonds, and 10% real estate, you would have $47,467 today.

Henah:

That’s still so huge.

Katie:

Still 4x your money, nearly 5x.

Henah:

Yeah.

Katie:

The more diversified portfolio is lower today, but would've been quote unquote up and outperforming that all-stock portfolio beginning in 2003 and would've retained dominance until around 2020. At which point, for reasons we kind of just explained or gestured at the US stock market really took off. But you kind of see that difference between if you had gone all stock, you would've been stagnant or down until 2010, a diversified portfolio, you would've started to see gains beginning in 2003.

Henah:

Someone actually emailed today being like, didn't you guys have a periodic table of investment returns? And I was like, I believe you're thinking of Callans.

Katie:

Yes.

Henah:

And they were like, is that updated? And I said, yeah, it is for 2023. But that's what I'm thinking of when you're naming all these different years and different kinds of returns you're getting, but either way, that's obviously way more than a $10,000 investment from the beginning.

Katie:

Right? Obviously, inflation is a consideration here, and $63,000 or thereabout is about the same thing as around $36,000 in 2000s money. There is a normalization or you have to consider inflation, but you're more than preserving your purchasing power. You still have triple, in real terms, what you started with despite investing at the top, despite investing at the worst possible moment in the 21st century. By my estimation. I guess someone could argue that you could think about this differently, but I wanted to see for those who kind of got in at the top before you had a bunch of crashes, what would've happened just to make the point that yeah, there are going to be crashes, but in the long run, if you believe in the power of compounding and long-term investment growth, these ultimately get evened out.

Henah:

I guess your answer to Ryan's question would just be: There is no best time, so to speak, to start investing; that it's again, just as soon as you have the money.

Katie:

Yeah, that would be my conclusion. That is the personal philosophy that I follow, and it is likely that the stock market is overvalued and it is also likely that we will see a bear market. He said, if there's going to be a bear market, there will be. It's just a matter of when, but when you're investing for the long term, it is a waste of time to try to time your initial entry. The best thing you can do is reduce your risk by diversifying outside of just big US stocks.

Henah:

I know a couple people have asked, but if people have a lump sum that they want to invest to the first time, do you recommend dollar cost averaging or throwing the whole lump in there?

Katie:

I would point them to Nick Maggiulli and his analysis on Of Dollars in Data of lump sum versus dollar cost averaging. I can't remember the exact conclusion insofar as how much lump sum outperformed, but the vast majority of the time he found that as soon as you have a lump sum of money, putting it all in at once, outperforms dollar cost averaging in little by little most of the time.

Henah:

I'll fact check myself, but I believe JL Collins said the same thing, that he doesn't believe in doing that with lump sums either.

Katie:

With dollar cost averaging them in?

Henah:

Yeah.

Katie:

This can be confusing because dollar cost averaging in general is a good thing. So I think people hear DCA and they're like, wait, but I thought that was good. It is because it references you making periodic contributions as you get more money available to you as you're paid every couple of weeks, you putting more money in the stock market just systematically and not trying to time when you're going to put it in or when you're going to hold back.

But when it comes to just getting a big lump sum of money, Nick's analysis concluded that because of a lot of the simple reasoning we've just gestured at, which is the stock market spends more time up than down that when you DCA, you tend to pay higher prices over time versus the chances that just putting in the entire amount at once is going to, you're going to pay an overall price. Your cost basis will be on average lower than if you wait a long time and just slowly shovel it in.

Henah:

Yeah, that makes sense to me.

So I guess if someone is going to consider investing right now, but they have some concerns on the types of stocks that are popping off, I guess I won't name a specific one that I'm thinking of, but I'm sure you have some. What can someone do to be mindful of that?

Katie:

Yes, so we have gotten questions about this. Right now the military industrial complex is raging. There are a lot of American weapons manufacturers that are up really big right now, and if you do not want to support that, I went looking for funds that excluded—you're like, I won't name names. I'm like, I will—excluded Raytheon, Lockheed Martin, Northrop Grumman, and Boeing, which are the big defense contractors. Wait, why are you laughing?

Henah:

I'm just laughing because I feel like every time we're like, “So companies that suck…” And somehow Boeing always, is thrown in there, but facts are facts…

Katie:

I know I feel like I get an email once a week that's like from a Boeing employee being like, will you please stop? And I'm like, I'm sorry. I understand it's not personal.

These are big defense contractors and there is a Betterment Broad Impact portfolio that has its large cap US stocks allocation broken up between two iShares funds. One of them is ticker SUSA, which removes I think the majority of the exposure to large weapons manufacturers. The other one, ticker ESGU, does contain these stocks. I'm not really sure the rules that are being applied on the backend to the composition of those ETFs where one of them has military stocks and the other doesn't, couldn't tell you, but I went in and went through the holdings of both of them and checked one by one and that SUSA in the Betterment Broad Impact portfolio that does have its large cap basically instead of VOO instead of the S&P 500, you're going to get a large cap fund, large cap blend that excludes military stocks.

I will also add that we did a deeper dive on the complications of sustainable investing in a previous episode, but I know that for some people right now, you don't want to be making money from companies that are making bombs that are killing children, which your conscience, your morals, those little things are getting involved and you're like, I just don't, so I can sleep at night. I don't want my money invested in those companies.

You can actually use weaponfreefunds.org, type in the fund tickers, and it'll produce an analysis of the holding.

Henah:

Oh, I love that.

Katie:

So I was trying to find what is the best fund for this based on this grading system that will look at all the holdings and kind of grade them. And actually, the best one that got the A rating from this site was VFTAX, which is Vanguard's social index fund. It has zero exposure to weapons manufacturers.

I wanted to include that because I know a lot of our listeners invest with Betterment and might be looking at their core portfolio and feeling differently about it. And so if you wanted to switch your large cap exposure, they do have that ETF that does pull out the weapons manufacturers, but if you're investing just in index funds on a regular-schmegular platform, that VFTAX is a good one, and you can use that weaponfreefunds.org if you want to check the extent to which you are investing in weapons manufacturers. So that's super fun to end on a high note of bombs, but it's important to know so you can make informed choices.

Henah:

Yeah, I'm really grateful that you brought that up because the industry I was thinking of is privatized prisons. Those have been ripping ever since the election.

Katie:

Oh, good point.

Henah:

There are multiple industries that I'm actively trying to avoid as much as possible, but I appreciate that you had a tactical place to go to check and to see. I don't know if Weapon Free Funds would include something like private prisons, but maybe there's a Prison Free Funds.

Katie:

I don't know. I bet you VFTAX—You know what, let's fact check right now. Hold on. I think—

Henah:

Fact checking on the air. Here we go. That one, oh, there's a prisonfreefunds.org. That is a real thing and oh, hold on. It's got a grade of a C.

Katie:

Prison industrial. I see that now. Yeah. Prison industrial complex: investments in prisons and borders industry including private prison operators. Okay. It says, yes, 16 holdings that invest in incarceration and detention facilities, supervision and monitoring.

Wow. It is 15% of the portfolio.

Henah:

It looks like the ones that get an A grade are a lot of Calvert emerging markets: Calvert Global Water, Calvert Global Water, Calvert International. So if you are looking for something that's prison free, you can go to prisonfreefunds.org.

Katie:

Yeah, I think that the good thing to know or how I would conclude this then is that this information is out there and as we highlighted in the sustainable investing episode, it is complicated, but I think on a personal level and for your own conscience, if you personally do not want to partake or you personally do not want to invest in these things, you don't want your money either fueling them and you don't want to profit from them. The information is out there. It's relatively easy to find and it's just going to take, I think a little more work to build a portfolio that doesn't make money or maybe makes less money from these things. I mean, even in a lot of these ETFs that are like you still have Amazon. That's why it's complicated and that's why we did a whole episode on it.

But I think if there are specific issues you feel really strongly about and you want to specifically weed out those things, you can also try direct indexing. I think that's another interesting idea from Wealthfront, where you can invest in an index fund but then selectively remove companies that you don't want exposure to. The challenge of course, is that you're probably going to get lower returns. The companies that are doing shady stuff are typically the most profitable.

But again, that's a conscious thing of like, well, I'll take lower returns if it means that I am not investing in things that I don't want anything to do with, and that is everyone's personal prerogative to make those choices for yourself.

Henah:

Speaking of naming and shaming stuff that is already out there, we have a fun feedback story today.

Katie:

Let's go.

Henah:

Okay, so this one came in from someone anonymous and I'm going to read first what they sent in and then an excerpt, so buckle in. So they said, “I have a friend who is job hunting and came across this company [redacted]. It's a sickening form of gaslighting trying to make no work-life balance cool. And what you sent it to me, I immediately thought Katie is the one who needs to run with this story. I truly believe you could do it justice while educating on why companies like this should be called out.”

So here is an excerpt from the job posting from this company that says, “In our minds, work-life balance is a fairytale. The reality is that your work affects your life and your life affects your work. That's why we practice work-life integration.” I feel like I'm in severance.

Next part, “We believe in living a good life, a life built up freedom, but freedom doesn't mean doing nothing and living the four-hour work week, leaving you bored out of your mind. For us, freedom means being able to live life on your terms and contribute in meaningful ways through work that inspires and lights you up while enjoying life along the way. Not when you retire. At [redacted], we work hard, not because we have to, but because we want to. We don't expect you to work 24/7, but you are expected to do what needs to be done to move the needle in your role.” This is my favorite part: “If you're selected to work with us, you're not accepting a nine to five punch and punch out job. And we're certainly not a company where—"

Katie:

We won't settle for just 40 hours a week.

Henah:

“And we certainly are not a company where you'd expect to completely disconnect every weekend, especially if clients or team members are counting on you to keep the ball rolling.” So that is a masterclass in gas lighting for real.

Katie:

Here's what I'll say about that. I have friends that worked for companies like this. Typically it's like startup culture that demands this level of fealty. If you want me to work like I have an ownership stake in that company, then I better have an ownership stake in that company. I better have equity. I better be benefiting from the upside. You better be compensating me for it. I think what's really is this tendency to appropriate the rise and grind entrepreneurial mindset that people will use to communicate what sometimes must be done when you own a business and the lack of work-life balance, but then sort of externalize or project that onto the employees. And it's like, no, no, no, no, no.

If you're paying someone a base salary and they have no equity, they have no upside. They are just the person that is being paid to do a job. You are just paying them to do a job. And I think it gets laundered in through this idea of people are counting on you. It's like paying—are you paying me to be counted on? Because if not, I think not. I think not.

Henah:

Well beyond startups, I mean nonprofits love this language of you're doing it for the right reasons. We're competitively paid, but you're not going to make $200,000 a year, but you're making a difference while you work. And it's like, sure, but I think there's a difference between can I make a living wage comfortably and am I being exploited to work 50, 60 hours a week? And that's where I would draw the line.

But I think their language of freedom means being able to live life on your terms. We don't expect you to work 24/7, but you are expected to… It's really—

Katie:

What you're really saying is what they're saying is freedom is the ability to live your life on our terms,

Henah:

Right? You're accessible and we want you to be.

Katie:

And here are the terms. By the way, if you're selected to work here.

Henah:

If you're “selected” to work with us.

I appreciate whoever sent this in. I think it's a really great example of language that I've seen in a lot of different job posts, and I think it's the same thing when people are like, when you see a job post that says we're a family, run, I'm like, yeah, agree with that too.

Katie:

And if you want over and above performance, you better have over and above compensation.

Henah:

And benefits.

Katie:

And benefits. There are people who will take that trade, be like, sure, I'll work weekends, but if I work weekends and this thing takes off, I better get a big payday. This is classic. You're kind of hiding the exploitative tentacles of what you're really saying, which is we expect you to be available at all times. Being completely disconnected is never okay, this isn't a nine to five. This is a whatever it takes position, but hiding it in that kind of soft and fluffy language of freedom and living life on your terms, and it's just so kind of baldly counterintuitive.

Henah:

Wait, can I read you other parts of their job listing that I just found?

Katie:

Sure.

Henah:

Okay. They said that they're obsessed with making their dreams happen, whatever, but “if you're looking for a cushy job with tons of time off, healthcare benefits, ping pong tables, and the ability to switch off when you leave the office, this isn't for you.”

Katie:

Jail.

Henah:

“If you get overwhelmed easily and your life is a mess, this isn't for you.” Healthcare benefits.

Katie:

Listen, if you want things like healthcare benefits, this is not the job for you. Yeah, I want to read another one. Hold on.

Henah:

“Again, this isn't a job. This is a passion.” That is a real line.

Katie:

Okay. “Are you a growth-minded entrepreneurial spirit?”

Henah:

Spirit

Katie:

Compensation, $60,000 per year, base.

Henah:

Is that actually what it says? Oh my God.

Katie:

No way. Our three core values, the second core value is an “owner-like commitment. We are dedicated to doing great work and going above and beyond because the business's success is our success.” $60,000 per year, get the **** out of here.

Henah:

Under requirements: “You have studied or been certified by influencers in the coaching space such as Tony Robbins.” This is real.

Katie:

This is how the grift wheel keeps turning.

Henah:

$60,000.

Katie:

$60K, the fact that they're just spelling it out too, owner like commitment. We want you to behave as though you have an ownership stake, but we have absolutely no intention of giving you one. Let me be very clear.

Henah:

Oh my gosh. And the thing is, it doesn't even matter if we name this company or not because here's the thing, there are so many companies that will put stuff like this out there, and that's why I think this example is so important is like these are the red flags you got to look for.

Katie:

Like I said, I'm not against, I think sometimes when we talk about these things, it can be spun is like they're against hard work. No, no, no, no, no. But I think if you're working hard, you should be compensated accordingly and you should be the one that is primarily benefiting from your own hard work. Otherwise, hard work as a virtue for the sake of enriching somebody else is kind of the fundamental lie on which most of our egregious labor force practices are built. This idea that behaving like an owner is just what it takes and they're going to pay you below median wage to do it. No, absolutely the **** not.

Henah:

I'm sorry. I'm still stuck on healthcare benefits being a perk.

Katie:

Wait, read the sentence again.

Henah:

Okay. “But if you're looking for a cushy job with tons of time off healthcare benefits, ping pong tables and the ability to switch off when you leave the office, this isn't for you.”

Katie:

Do you want to be able to see a doctor or have any free time? Get out of here, player. You're not cut out for this. We're going to give our $60k to someone else.

Henah:

Be so for real.

Katie:

That is insanity. All right, well, on that note, that's all for this week's Rich Girl Roundup. We will see you on Wednesday. Do not let anybody play in your face like that. That is ridiculous.

Henah:

Egregious.