#294 – Retirement Planning in a Changing Market: U.S. vs. International Stocks, the Rich Ratio, and Long-Term Investing Decisions

Wes Moss [00:00:08]:
Ah, you’re Christa DiBiase and I am Wes Moss, and it’s— I’m excited that you’re excited about the show.

Christa DiBiase [00:00:14]:
I am because first of all, the topics you’re talking about, the first topic, a lot of questions come in about this: international stocks versus domestic stocks. Is it time for us to load up on international stocks? You’re going to answer that question for us, and then you’re going to answer some of the questions that came in from from the listeners. And you’re also going to talk about the one retirement number that still matters this year, and I don’t know what that is, so I’m excited to hear about that.

Wes Moss [00:00:39]:
It’s a rule of thumb ratio that is super important.

Christa DiBiase [00:00:42]:
Okay, awesome.

Wes Moss [00:00:44]:
Oh, so it’s my turn. It’s your turn. So this is prompted by a lot— most of this is prompted by just real-life questions and real-life concerns that I hear about, whether I’m watching the financial media or getting feedback because all the questions we get, the awesome questions we get here that you all send in.

Christa DiBiase [00:01:05]:
And Curious Christa wants to know this too. I really do.

Wes Moss [00:01:08]:
Curious Christa. Good. And I love, I love that you’re starting to use that a little bit because the questions are just, they’re always making us think here on the show. So I love it and we appreciate them and we appreciate you listening. And this comes from not a direct question, but I can start to feel as tides are changing by the mentions of certain things that are happening in the news. And one recently is the mention of international, international, international. And part of the reason I am getting more and more questions about that. And really when someone asks about, hey, how much do I have in international? I’d like to figure that out.

Wes Moss [00:01:48]:
They’re really asking, shouldn’t I have more international? And the reason is because over the past year, international stocks have done really, really well. Now they’re definitely playing catch-up over the last couple of years, but over the last year, the S&P 500 is up, let’s say roughly 16%, and international stocks, just a broad international ETF, 36%. This is a big difference, 20% win or 20% gap, when it comes to international, and investors are starting to ask, hey, am I underweight international? Should I be shifting more to overseas? Is this the start of a new global investment regime? So it’s certainly an important question to ask because if you think about it, inside your 401(k) plan, you think about the choices, you’ve got US large-cap and small and mid, and then you’ve got international. And usually you don’t, You may have international options that are large, small, growth, value, but a lot of 401(k) plans are just an international index. So it’s one of, of a few important choices, but just a couple points of caution is that we do have what I would consider— there is a very pronounced behavioral idea when it comes to investing that’s called recency bias. It kind of says what it means, which is we think very quickly what is just done well, or pretty recently, is this going to continue to do well? We’re great. We humans are so good at extrapolating. We are the best extrapolators.

Wes Moss [00:03:24]:
If something’s going up by 2% per year, we think it’s going to go up by 2% for every year. If something’s outperforming by 20% a year, our brains are saying, well, it’s good. Isn’t it going to continue? Of course it’s going to continue. And I want to make sure people don’t get overly excited about international. Because of the recency of the rates of return. Leadership and reversion to the mean happens in markets, and it’s one of the few immutable rules around markets is that when you have one place that’s led for too long, you have another place that starts to catch up. This last year is probably a good example of that. Small-cap US stocks have done really well this year and have played catch-up to large-cap, which has been winning for a lot of years.

Wes Moss [00:04:07]:
It’s a somewhat of a reversion to the mean. International stocks have done well relative to US, but US has kind of crushed international stocks over the past 3 years and 5 years. So there’s just some catch-up happening here. And this goes back to why asset allocation is important. We don’t know when that leadership necessarily turns. But if you look back over the course of economic and market history, if an asset class has averaged 10% a year, but it’s only averaged 4% a year for the last few, usually it’s due for a catch-up. We just don’t know when the catch-up typically rotates. We’re seeing it now though.

Wes Moss [00:04:43]:
Then there’s the worry, and this is the other fear that pushes these questions about international. Hey, do I need international? Not just because of the rate of return, but because of a story like this cover of Barron’s story fairly recently, The Reign of the Dollar. Is coming to an end. What’s that tell you? It tells you that, well, maybe I shouldn’t just be in the US. If, if our own very dollar, its reign has come to an end, do I want to be in the US dollar? So then there’s some fear pushing us towards international. Now, I do think that we have seen the gist of this story is that central banks— so think about the Federal Reserve, here in the US, but in other countries, the European Central Bank, the Bank of Japan, Swiss National Bank, etc. They have a huge amount of dollar reserves, US dollars, mostly in Treasuries. There’s this thought that they’ve been dumping US Treasuries to buy gold.

Wes Moss [00:05:48]:
That’s not true. They have just been adding less. And they’ve— the article used this— they kind of intimated US central banks have kind of been quiet, quietly quitting US dollar. So they’re not just throwing it out and getting rid of it. It’s just, they’re not adding, they’re letting bonds mature and they’re not buying as many treasuries. So they’re reducing their dollar reserves at least a little bit. And the US dollar is down relative to the other 6 major currencies by about 8% over the past 12 months. So there has been a shift, but it’s not as though there’s some global panic or collapse and every bank is getting out of the US dollar for other currencies, because the US dollar is still— and this is what I think a really important way to think about the dollar relative to every other currency.

Wes Moss [00:06:35]:
Are we going to ever lose our reserve status for the dollar? Think of just the economic machine that is a global economy. It’s, it’s hard to even know exactly what the number is. Let’s call it $100 trillion. It’s just gargantuan. The US dollar and, and other dollar-pegged currencies are about 60% of all global commerce. So if you look at all the transactions, money, all the— almost everything in the United States obviously is US dollar. We’re a giant part of the global economy. International payments from country to country, countries buying oil from other countries.

Wes Moss [00:07:12]:
60% of global transactions in a year are dollar. Then you’ve got the euro, which is roughly 15%. Then you’ve got the Chinese yuan at about 5%. And then you have the Japanese yen at 3 and the British pound at 3. And then everything else is in the low single digits. And by the way, someone asked me the other day about Bitcoin and digital currency. It doesn’t even show up as a— it’s not even a rounding error. It’s a 0.001 when it comes to digital currency.

Wes Moss [00:07:43]:
So imagine how entrenched and large that system is that has been using the dollar. And by the way, I remember it’s been 15 years ago, I did a radio story about this and those numbers are almost exactly where they were 15 years ago. I remember thinking, wow, 60, it’s just hard to unseat the dollar. And I’ve been looking at this over the last month. I remember, well, it’s really the same as I did a story on this 15 years ago. So I’m not worried about the US dollar losing its reserve currency. Should you load up on on international. I think that it should be part of a well-diversified asset allocation.

Wes Moss [00:08:21]:
Also remember that, and this is one of the reasons I’ve been biased towards US stocks, is that 40% of the revenue generated from S&P 500 companies is from overseas. And you have big companies like, as an example, McDonald’s, 60% of their revenue is from outside of the United States. Can you think of a more American brand? Apple, over 50% of their revenue outside the US. Intel, over 70%. Nike, over 50%. Procter Gamble, I think it was a very US-centric company, 55% of revenue outside of the United States. So think about a company makes a sale, that’s €1,000 in another country, and then the US dollar weakens and that currency strengthens. When it gets converted back, to the United States, what happens? You get more dollars.

Wes Moss [00:09:09]:
So there is a hedge to some extent against a declining dollar by owning global or multinational companies. So before you ditch your US stocks to try to have a larger portion in the— in non-US domiciled companies, take a look and just see what you own. If you own a bunch of large multinational companies, you’re already getting at least a partial hedge against a weakening dollar because of global companies doing business all over the world.

Christa DiBiase [00:09:44]:
Okay. Well, let’s take some of the questions that came in for you, Wes. This one’s from Gary in Nevada. He says, I’ve heard you say that FOMO Freddy will actually trail the market by piling into the prior year’s hottest sector or strategy. My question is, have you ever looked at Glad I Missed Out Gladys? That is someone who piles into last year’s losing sector or strategy. It seems like at a lesser level, that is what I’m doing when I rebalance my portfolio.

Wes Moss [00:10:11]:
How cool is that? I love Gary. Nice call, Gary, on Glad I Missed Out Gladys. That’s pretty cool. I love that. He’s, he’s taking this to a whole nother level. And why not? I think it’s awesome. And yeah, I hadn’t really thought about that, but that’s what’s happening. When you’re rebalancing.

Wes Moss [00:10:33]:
And if you are, you’re almost, anytime you rebalance, what are you really doing? You’re selling the asset class that did the best and you’re buying the asset class that did the worst or did, let’s say, less well over time. And to some extent, if you’re a Gladys and you’re glad you missed out, this rebalancing almost forces you to buy something that hasn’t done quite as well. We’ve had a lot of themes in the last couple of weeks where we were seeing reversion to the mean. International has lagged and now it’s doing better. Small caps have lagged, now it’s doing better. It’s, it’s really easy in a year where your small cap part of your portfolio didn’t do all that well and you just shun it and you don’t add to it. You don’t rebalance more to it. So that the idea here, Gary, is that rebalancing automatically makes you kind of a glad I missed out, GLADUS, because then I can now buy more of something that did a little less well than something else or didn’t do— it did poorly, but I still want to own it.

Wes Moss [00:11:38]:
And I want to add to that because it may— we may have reversion to the mean. And that is the whole point of rebalancing. Rebalancing, just think of it in an extreme case. You have— you start retirement at 70% in stocks. You never rebalance. Well, let’s say you’re 7 years before retirement. And you really are comfortable only owning about 70% in stocks. And then 7 years later, you retire.

Wes Moss [00:12:03]:
And now your portfolio is 90% in stocks and you’ve quietly gotten more and more comfortable with that. It’s like you’ve been a frog boiling in the water. Very slowly though, just the temperature just goes up and up and up and you don’t really notice it. And all of a sudden you retire And the water now starts to boil and the stock market goes down by 30% and you’re not 70 anymore and you don’t have a hedge of 30% in safety assets. Almost everything’s in stocks. So now you’ve just created, you’ve been hit by sequence of return risk. And now when you really need the money and start withdrawing, you’ve gotten hit because you hadn’t been rebalancing. And now you’ve gotten caught up in the equity storm.

Wes Moss [00:12:48]:
When really you didn’t want to do that to begin with because you slowly, the temperature rose and you got more and more and more comfortable rebalancing, being a glad I missed out gladdy and recognizing that rebalancing every year can help you avoid it.

Christa DiBiase [00:13:02]:
Steve in Wisconsin says, when retirement statistics are shared, we often hear statements like the average person has X amount of dollars in their 401(k). Isn’t that potentially misleading? Many individuals have multiple 401(k) accounts from different employers. IRAs alongside their 401(k)s, so an account-level average doesn’t necessarily reflect a person’s total retirement savings. I’d be much more interested in the average total retirement savings per person, regardless of how many accounts it’s spread across. Similarly, we often hear that roughly 40% of the population owns their home outright, which I do. That figure also seems misleading since it can include corporate-owned homes or rental properties. What I’d like to understand is what percentage of owner-occupied single-family homes are owned free and clear? Thanks for all the insight you share. I really appreciate the thoughtful, data-driven discussions.

Wes Moss [00:13:55]:
Steve, you’re right. Why does it matter if Americans have 2, 3, 4, 5? We had a question, I think last week somebody had 7 different brokerage firms. So yeah, it doesn’t matter. Those stats are really just for the media. And they’re just kind of interesting, I guess. But it’s really hard to aggregate. And I look this— I’ve spent a lot of time trying to get to the bottom of these numbers. And the Fed has this survey of consumer finances and they do a pretty good job.

Wes Moss [00:14:27]:
But yeah, the average balance of a retirement plan probably tells us very little. So you’re right. Let me come back to that though. The quick and easy answer on the homeowner part of this, 40% outright, does the corporately owned mess that number up. Remember, those corporate-owned homes are— people are renting those. So the, the number of folks that have their mortgage paid off that own their homes in America, these are humans, individuals, not companies or hedge funds, it’s about 40%. So it is, that number is not skewed by the data of corporate ownership. As far as knowing What Americans really have, you’ve got to just look at the overall net worth.

Wes Moss [00:15:12]:
That’s really the number that matters because at some point your net worth can be either, even if it’s not liquid, can be turned into an income stream or be liquidated. So it’s really, I think that on a scale of 1 to 10, your retirement balance in XYZ retirement fund, it’s like a 4 out of 10. Your net worth when it comes to your finances and getting into a green zone, like I talk about in the Retire Sooner Method, part 1 is about the money green zones we want to hit to be able to retire sooner. It’s really about your overall net worth and savings and not just in a particular account. The, the, here are the numbers though for net worth. About 1 in 3 households in America have a net worth of $500K. Or more. About 1 in 5 households have a net worth of over $1 million.

Wes Moss [00:16:09]:
And again, this is including your property value, which is a huge chunk for a lot of people, your home equity. The top 10% of households in America, that’s the 90th percentile, starts at about $1.9 million. Let’s call it just shy of $2 million. So to be in the top 10% of households, net worth is just shy of $2 million. $1.2 million. Now, the median household net worth, remember, just we’re not taking the average here, just the middle point, is $192,000. That is the middle point of America for a large age range. So those are the numbers.

Wes Moss [00:16:47]:
And that to me tells us that, by the way, the top 10%, if you’re in the more closer to retirement age, 55 to 64, is closer to $3 million. So as we get older, to be in that top 10% of net worth, it’s a higher number. But you’re right, your net worth is your home equity, it’s your savings, your taxable brokerage accounts, your retirement accounts, your Roth accounts, any sort of rental assets, commodity, everything minus liabilities. That’s what matters.

Christa DiBiase [00:17:15]:
Okay. And then Mike in Ohio sent this one in for you, Wes. My question probably falls into the good problems to have category. I’m ineligible for both Roth and a deductible traditional IRA. “so I’ve just been maxing out my non-deductible traditional IRA contribution. I was playing with ChatGPT recently and it told me to stop doing this. ChatGPT recommended that I put the money in an ordinary brokerage fund as the tax treatment would be favorable. What are your thoughts?

Wes Moss [00:17:43]:
Thanks for all you and your team do.” Hey Mike in Ohio, thanks for checking in with us here, just us humans. Non-deductible, IRAs can be fine if you’re doing a backdoor Roth. So if you’re, if you’re putting money into an after-tax IRA or a non-deductible IRA, just to convert it quickly into a Roth, which would be a backdoor Roth conversion, then it is, it is fine. But for the most part, if you’re doing non-deductible IRAs, you’re just creating a tax problem because you’re not getting a— you’re, you’re, you’re You’re paying taxes at your rate, then you’re contributing, and then, and then you’ve got to keep track of your non-deductible portion for the rest of your life, which makes your taxes really complicated. And that’s an issue. The other thing is that you are trading, let’s say you’re paying 24% in taxes to now have your net amount to then get put into a non-deductible IRA. If you’re just saving in a brokerage account, and again, this is about taxes today versus taxes tomorrow. For the vast majority of folks, you’re pulling money out of that IRA in a worst-case scenario at a 15% tax.

Wes Moss [00:19:04]:
I’m sorry, out of a brokerage account, because it’s long-term capital gain, which is super favorable. Your dividends are at long-term capital gain rates, which for a lot of Americans is 0%, depending on your income. And for most Americans, it’ll, it’ll go up into the 15% range. For only a small portion of the ultra high earners, it can go up to the 20% long-term capital gain rate. But we don’t want to trade paying taxes at 25% and then knowing that in a brokerage account, we can be pulling money out at 15% when in retirement, we may be at an ordinary income rate that’s at 24%. So there’s tax efficiency in a regular brokerage account. There’s more simplicity in a brokerage account, unless you’re trying to do a backdoor Roth. So I would say GPT was probably partially right, but I’m glad you checked with us mere mortals.

Christa DiBiase [00:20:01]:
All right, we’re going to take a quick break. We will be back with more of your questions, and Wes is going to tell us the one retirement number that still really matters this year.

Wes Moss [00:20:12]:
Have you heard about the Rule of 55? It allows many Americans to tap into their retirement savings as early as age 55 without the usual penalties. That’s right, 55. Georgians could be enjoying their retirement a decade earlier than they might have otherwise planned. Don’t miss out on an extra decade of retirement fund just because you don’t know the rules. And our team can help with that. You can find us at yourwealth.com. That’s yourwealth.com. The one retirement number that, let’s say, still matters in 2026.

Wes Moss [00:20:47]:
The world’s changed. AI is shifting the ground under our feet in so many industries. We had originally wrote about this back in 2012, and since then we’ve had a global pandemic. We’ve had violent bear markets. We’ve had waves of economic stimulus. We’ve had austerity, we’ve had inflation, the Mag 7, tariff tantrum and tremors. And then of course, back to where we are today, the nervousness around the whack-a-mole market and AI and what it’ll do for our future. So it’s been a lot, but one thing that has not changed at all is the power of thinking about the rich ratio and really your comfortability around your have in retirement relative to your need.

Wes Moss [00:21:32]:
In retirement. And if you think about retirement as this long journey and you’ve got to get— and you’re just going and it’s an uphill, it’s a slow uphill climb all the way. And you’ve got a backpack on and you start picking up shiny rocks because they look good. And you pick up little rocks and you put in the bag, you pick up maybe some bigger rocks because they look— they’re awesome and you want to keep them for posterity. The next thing you know, you’re way down the line and you’ve got this heavy backpack on. It’s full of rocks. And those rocks are spending commitments. Those rocks are maybe debt.

Wes Moss [00:22:04]:
Those rocks are assets that create more taxes that you have to pay on. And what does it do? It makes that journey now harder relative to having a light backpack heading into retirement. And you can either drop some of the rocks and make things light, or you can accept maybe what is a much longer, harder climb. And that’s where the rich ratio comes in, because it’s a very simple way to think about what retirement’s going to look like for you, which is have divided by need. And think of that, that you have is your total monthly net income after taxes. Your need is your monthly spending requirement. And if the rich ratio that you have is above 1, I would say you are financially rich. If it’s below 1, you are financially strained.

Wes Moss [00:22:56]:
Regardless of what, of how high the income is. And it works at every income tier. If you earn $1 million a month, like Curious Christa, you would still be poor if you needed $2 million per month.

Christa DiBiase [00:23:10]:
Right? Sure.

Wes Moss [00:23:10]:
You wouldn’t, you’re curious about what it would be like to have $1 million coming in a month though, too.

Christa DiBiase [00:23:17]:
That would be insane.

Wes Moss [00:23:18]:
I think everyone’s curious about that. You can earn, let’s say, $6,000 a month after taxes and be financially rich. Rich if you only need $4,000? And I see this all the time, and that’s a comfortable human being. It’s a comfortable human being. So rich isn’t about the income. It’s about the margin and the cushion and the safety.

Christa DiBiase [00:23:38]:
So I love that. Rich isn’t about the income. It’s about the margin.

Wes Moss [00:23:42]:
Yeah. And the rate. It’s about the ratio. I think it matters as much today in 2026, or maybe even more, in a scary, constantly changing world. This has not changed. It’s the same. And you don’t need an enormous algorithm and code through artificial intelligence to figure this out. Tale of Two Retirees.

Wes Moss [00:24:02]:
Tom, he’s got a $12,000 a month need. Social Security at $2,500, pension of $1,500 a month, and portfolio of $1.2 million. That’s— this guy’s pretty wealthy. He needs $12,000. Social’s at $2,500, pension at $1,500, and a portfolio. His income is only $8,000 a month. His need is $12,000. He’s $4,000 underwater every single month.

Wes Moss [00:24:22]:
So it just keeps getting worse and worse and worse. His rich ratio would be 6 points. It would be 0.67, way under 1%. His lifestyle is outpacing his income structure. And that is wealthy. Yeah, he’s wealthy, but financially stable? No, not at all. Susan, on the other hand, in 2026, is more intentional, less rocks in her backpack. Monthly need of $4,000.

Wes Moss [00:24:49]:
Now you may say in America, $4,000, what? I did that. Who could? Well, if you have no debt whatsoever, then I know many families that live on $4,000 or $5,000 a month. It’s not as crazy as it sounds. Social Security coming in at $2,200, a pension of $1,800, and a portfolio of $500,000. Not nearly as much as Tom, but her ratio, or half coming in is $5,600 a month. Her need is $4,000. Rich ratio of 1.42%. She’s got cushion, and cushion equals a lot of confidence.

Christa DiBiase [00:25:24]:
And comfort.

Wes Moss [00:25:25]:
Confident Christa, that’s where you are.

Christa DiBiase [00:25:27]:
Cushion is comfort.

Wes Moss [00:25:29]:
So that’s, so the threshold, go ahead.

Christa DiBiase [00:25:31]:
I’m sorry, I just wanted to point out, like you’re saying, so their needs are, so I guess the thing to really look at is, are all these things, all these rocks really needs, or are they wants? And if you can lower your needs, that’s gonna give you power in life.

Wes Moss [00:25:44]:
And that’s why one of the financial green zones is getting rid of the mortgage. That is people, that’s usually a top 1 or 2 need because you, once you have a mortgage, you need to continue to pay it off. Not only do you need housing, but you, they’ll take the house away if you don’t do it. So it’s getting rid of that is creating, getting rid of one of the largest rocks.

Christa DiBiase [00:26:04]:
Or if you have to make extreme changes, maybe you sell that house and you move to a place that’s much more affordable. And that would lower your quote unquote needs, right?

Wes Moss [00:26:13]:
Depends on how much equity you have. Depends on where mortgage rates are, which by the way, we’ve gotten a little bit, continue to have gotten a little bit better. So there’s more to this, but I think we’ve got to run to questions here. But think about all the complexity in the world and then think about the simplicity of your rich ratio. You could calculate it in probably 30 seconds or a minute. And it’ll tell you how much cushion and margin you have.

Christa DiBiase [00:26:39]:
Neal in California sent this question in for you, Wes. I’m a retired firefighter and my pension is $6,100 a month after taxes and medical insurance. It has a 3% COLA. I’m 60 years old and my wife is 59. If I pass, my wife will continue getting our pension at the same rate. We’re debt-free and our monthly budget is $1,650. We have about $360,000 in investments. And our emergency fund.

Christa DiBiase [00:27:05]:
I have a couple of questions. One, how do we calculate our net worth? And two, what would be the proper way to consider my pension as part of my portfolio and diversification? Hmm.

Wes Moss [00:27:16]:
Firefighter Neal. Thank you for your service and your bravery for probably a very long period of time, because you have, I can tell you did this for a long time. Because you’ve got a very serious pension and that’s a JTWRM. S pension.

Christa DiBiase [00:27:31]:
What’s that?

Wes Moss [00:27:32]:
Joint with rights of survivorship, because his wife will get the same amount for her life, even if something happens to Neal. That’s great. And a 3% COLA. And very likely, if Neal worked outside of being a firefighter at some point, or his wife did, because of the new changes getting rid of the WEP, the Windfall Elimination Provision, and the government pension offset, he may be able to get some decent Social Security too. But I don’t know if he even needs it because $6,100 a month. So first of all, the simple answer to your net worth question is just assets minus liabilities. That’s it. It’s really, if your investments are $360,000 and your home equity is $360,000, your net worth is $720,000.

Wes Moss [00:28:18]:
What is missed though, and this is a big variable for you guys, Neal, is the income. Now your income stream doesn’t technically count as net worth, but for you, it should count as your net worth because it’s tremendous. And think of it this way. And you do need to calculate the size of it if it were an asset so that you can better figure out your overall asset allocation. And the way to do that is essentially you’re choosing a rate of return that you would need to get in order to get $6,100 a month from a bond. So let’s just pick 5%. So $6,100 a month times 12 is $73,200 a year. That’s what you’re getting in income guaranteed for life, and it goes up by inflation.

Wes Moss [00:29:06]:
Divided by 5, or 5%, it would take you $1.46 million in a bond account to generate that $73,000 forever.

Christa DiBiase [00:29:20]:
And actually, he said that’s after taxes and expenses, right?

Wes Moss [00:29:24]:
So we’re even undercounting that. So really, you already have about $1.5 million worth of what I would consider fixed income. So now I would say you’ve got your other $360,000. So you really have about $1.8— think of it as $1.86 million to consider of your overall investment pie. So even if you had all $360K in stocks, because you have such a large portion in what I would consider more of a fixed asset, you would only have about 20% in stocks if that whole $360K was in equities. Because the other 80% of your investment pie is really that fixed account or stable income. That’s how I would look at this. So you could calculate it would take a net worth of, call it $2 million to be in the position that you’re in today.

Wes Moss [00:30:30]:
By the way, one thing we just casually skipped over is Neal’s rich ratio. It’s through the roof because he, he has $6,100 a month and he only needs $1,650 a month.

Christa DiBiase [00:30:42]:
Right.

Wes Moss [00:30:44]:
Means everything’s paid for.

Christa DiBiase [00:30:45]:
That’s awesome.

Wes Moss [00:30:46]:
So he’s got a rich ratio of like 3.5 or 4. It’s awesome.

Christa DiBiase [00:30:50]:
Okay. Christopher in Oregon says, my wife and I started using a side hustle to save for a vacation house starting in 2019. We’ve had the money set aside in a savings account that is now down to 3.39%. The fast increase in the price of vacation homes where we were looking, along with the changes in short-term rental laws there, has pretty much put it out of reach. Now we have over $100,000 saved and our likelihood of purchasing that vacation home is very slim. “We owe $80,000 on our current house at 3.65%.” How much?

Wes Moss [00:31:21]:
I’m sorry, how much? $80,000.

Christa DiBiase [00:31:23]:
At this point, do you think we should just pay off our current mortgage? Should we just tackle some of it? If the housing market dips where we want to buy, it might be back on the radar, but it seems unlikely. The side hustle isn’t making as much, but our regular W-2 jobs are fine. I’m a federal worker with 12% going into my TSP, and we both have fully funded Roth IRAs. We have no other debt, about 3 months of savings separate from the vacation home account, with a very little low likelihood of any reduced income. I don’t know the best way to utilize this extra money, and it seems like it’s not doing enough in a savings account. Thanks for your valued opinion.

Wes Moss [00:32:00]:
Christopher in Oregon. It’s so Plan A was to buy the rental property and you’ve saved a bunch of money to do it. And now the rental market is out of reach and you don’t, and you don’t want to do that. So now it’s Plan B. It’s like, okay, what do I do with this money I’ve saved? So it’s kind of a good problem to have. And they have $80,000 left on the mortgage. My rule of thumb on getting rid of the mortgage is a third or less of your after-tax money, pay off the mortgage. Now, $80,000 divided by $100,000 is not a third.

Wes Moss [00:32:31]:
It would take 80% of your $100,000 to do that. So it kind of violates the one-third mortgage payoff rule. But you also said you have 3 months’ worth of emergency savings. You’ve been funding at 12% the Thrift Savings Plan for a long time. It sounds like you have other savings here, Christopher. It depends on your liquidity. I’d love to see you just pay off the mortgage. You’re not going to be displeased by doing that.

Wes Moss [00:33:03]:
The other thing here is I think, I bet you have stable income, Christopher, because you’re in Thrift Savings Plan. So maybe it’s a government employee.

Christa DiBiase [00:33:12]:
It is. And he said it’s very unlikely that they’ll have reduced income in the future.

Wes Moss [00:33:17]:
Okay. So you have a really steady income. Your income is more like a bond versus a stock, Christopher. So I would say you could be in the camp where you have a low probability of, high probability of keeping your job, very stable income. And they would violate my 1/3 rule. Probably. I don’t know your, all some of your other after-tax assets. If you, if you have more after-tax assets, non-IRA money, then maybe it makes this even easier.

Wes Moss [00:33:46]:
But I guess I would lean towards getting rid of that mortgage if you’re in a position to do it now. Worst case scenario, your home is totally paid off. And if you really had an emergency, how do you get to some money? You could always have a home equity line as a cushion, which you probably won’t ever need. So I don’t, I doubt you’ll be upset if you pay it off, use that money to pay off the mortgage.

Christa DiBiase [00:34:09]:
And then take that mortgage payment every month and Put that somewhere.

Wes Moss [00:34:12]:
Put it right back in.

Christa DiBiase [00:34:13]:
All right. Timothy, also in Oregon, says, “My 19-year-old daughter has already saved $3,000. She works most of her hours during college summer break, but she doesn’t make money every month, so monthly contributions aren’t possible. What would be the best investment with Vanguard for her?

Wes Moss [00:34:29]:
She already has a Vanguard account established.” Timothy in Oregon, when you’re thinking about a young person that can be all equities, The big firms like Vanguard or really any of the big brokerage firms, they all have ultra, ultra, ultra low-cost S&P 500 funds options and then total stock market options. Both are fine.

Christa DiBiase [00:34:51]:
I have to assume this is a Roth IRA too, don’t you think?

Wes Moss [00:34:54]:
Yeah, I think she’s—

Christa DiBiase [00:34:55]:
because of the income.

Wes Moss [00:34:56]:
I thought it was Roth, maybe not. And it’s fine that the income is lumpy. Yeah, it’s in a perfect world, we’re putting a little bit of money in every single month, but it’s still fine to contribute when you, when you get it or when you have it. The consideration for somebody really young like that would just be, do you just do the S&P 500 or do you do a total stock market? Total stock market is go— the S&P 500 is all 100% large cap. A total stock market fund, index fund is going to be more like 80% ultra large cap. Which means you have another 20% in small and mid. And I like that, particularly for somebody really young. Regardless of what brokerage firm you’re with, you’re going to have probably those two options.

Wes Moss [00:35:42]:
And I would lean more towards total stock market for somebody this young, even more so than the S&P 500. But I think you would be in good shape with either.

Christa DiBiase [00:35:53]:
Good for her for starting so young too. Pretty awesome.

Wes Moss [00:35:55]:
Christa, I love having you here. I love these questions. So thank you as always for being in studio. Send us more questions at yourwealth.com/contact Have a wonderful rest of your day.

Mallory Boggs (Disclaimer) [00:36:09]:
Hey y’all, this is Mallory with the Retire Sooner team. Please be sure to rate and subscribe to this podcast and share it with a friend. If you have any questions, you can find us at wesmoss.com. That’s W-E-S-M-O-S-S dot com. You can also follow us on Instagram and YouTube. You’ll find us under the handle Retire Sooner Podcast. And now for our show’s disclosure. This is provided as a resource for informational purposes and is not to be viewed as investment advice or recommendations.

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Mallory Boggs (Disclaimer) [00:37:23]:
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