Investing Unscripted Podcast 119: Jason is Buying a Bunch of Bonds

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Note: All transcripts are edited for clarity. We may earn commissions from some (not all) links. Thanks for the scratch.

[00:00:02] Jason Hall: hey everybody. Welcome back to the smattering where we ask the hard questions about investing. I'm Jason Hall and joined by the voice of people, Jeff Santoro. Jeff. Hey, buddy.

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​Jason Hall: Hey everybody. Welcome back to Investing Unscripted, where we ask and answer the hard questions about investing. I'm Jason Hall, sometimes known as big J. [00:01:00] That's Jeff Santoro, the voice of the people. Hey Jeff. 

Jeff Santoro: Hello, my friend. How are you, sir? 

Jason Hall: I'm good. Apparently I'm overweight and out of shape. 

Jeff Santoro: Okay. I mean, that's a weird way to start a podcast about investing, but sure.

Jason Hall: Well, it actually kind of ties into the show a little. 

Jeff Santoro: I, I guess stages of life, 

Jason Hall: maybe. 

Jeff Santoro: So you're saying you're at the, overweight stage of- This has gone off the rails rather quickly. 

Jason Hall: Even more quickly than normal. So, okay. Meanwhile, back at the ranch. as usual here on Investing Unscripted, The topic for today's show is something that's coming from real life. A lot of our podcast episodes are based on conversations that Jeff and I have about different things. we try to bring on guests about topics that overlap. the demographics show that a lot of our listeners are similar ages. if they're younger, eventually they'll be the same age that we are now. hopefully, so that's, [00:02:00] um, one of the things I think is really interesting about the idea for today's show, which we're tentatively calling big changes.

Jeff Santoro: Are we? 

Jason Hall: Tentatively. 

Jeff Santoro: We'll see. We'll see how it goes. 

Jason Hall: Yeah. Tentatively means I'm saying that that's the name and then Jeff's gonna come up with something actually good. 

Jeff Santoro: Well, we both know that's not true. 

Jason Hall: I was trying to make you sound good in front of the people, Jeff, and then you ruined it. 

Jeff Santoro: I don't need your, I don't need your, insincere flattery.

Jason Hall: It wasn't insincere. 

Jeff Santoro: Alright, moving on. It was just a lie. 

Jason Hall: Yeah, moving on. Okay. So back to the point, Jeff, we're having a podcast here and I'm thinking about making some changes. 

Jeff Santoro: Yeah. So we had Brian Withers on a couple of weeks ago. And he talked to us about changes he made as he is in this sort of in between time, not retired, but kind of getting close, but he left his corporate job and he's doing a new thing that he likes better and that that kind of stage of life.

And we thought it would be interesting to talk about, even if you're still. Five plus [00:03:00] years away from actually making any changes, like to prepare yourself for being close to retirement when you're in your mid forties, like we are, well, I am Jason's very close to 50. You have to start to- 

Jason Hall: You had to say that out loud. Didn't you? 

Jeff Santoro: I did. Okay. Um, you have to start to think about like, what are the changes I will make and when will I make them? Right. So you're not. All of a sudden saying, Oh, no, I have to make all my changes right now because I'm this age. Right. So, so we wanted to kind of have like a, a conversation about how to think about what changes might, you might want to make at some point as you kind of get into that, like first stage of thinking about retirement.

Jason Hall: Yeah, that's it. That's exactly it. And Jeff, you said the, the, the word that begins with fit that I'm not going to say, but I'm 47. I'm I'll be 48 before the end of the year. And 48- 

Jeff Santoro: Is really 

Jason Hall: close to 50, right? 

Jeff Santoro: Thank you for recognizing it. 

Jason Hall: It, it, it, it, I, the first step to getting helps admitting you have a five handle, I guess, um, [00:04:00] in your age.

So, but so here's the thing I've talked about this before and I'm pretty much an open book with my investing journey. Hopefully my successes and, and copious mistakes that, that we talk through a lot help other people avoid those same mistakes. And yeah. Learn some of the valuable lessons to, to find their own success.

And here's where I am. I just want to kind of lay this out because I've talked about it before. This is something I've, I've been thinking about for a long time, because I've talked about as I get closer to, retirement age, you go from a period where you're really, really focusing on growing your wealth.

And a lot of times we think you just, well, you go from that to, well, you have to preserve your wealth and you start drawing down. And there's an in between period where the things happen, right? And one of the things I've been thinking about a lot is my wife and I have been very fortunate through our financial success, the the Uh, good incomes [00:05:00] that we've earned our high level of discretionary income so that more money to, to save and invest plus this remarkable 15 years that we've invested through as we've entered into our peak earnings period.

So. You put all of those things together and one of the things that I try to do at least once a year is, is think about working backwards from like a number. And an easy number to use when you start thinking about, uh, financial independence is your current income minus. Any expenses that you wouldn't have in, in retirement, for example, when you go into fixed income, the first one you can take out is retirement contributions and investment saving, right?

You obviously, and if you're contributing 15 percent today, you back that 15 percent off and immediately that's like a good starting point, then you can start looking at other things. 

Jeff Santoro: Like if you might have your mortgage paid off by the time you retire or be done paying for your kids college by the time you retire that 

Jason Hall: or you just want to kick them out, right?

Whatever. [00:06:00] Um, it's just make the number zero next to the child on the ledger. So, the, the, the point is that I've started doing kind of doing that math, looking at where our portfolio is, is now in the start of invested wealth. So. not emergency savings, not our operating cash that we use to pay bills and that kind of thing, but just money safe for retirement.

And invested assets, looking at those things. So not, not the home equity, like gotta live somewhere. So just things, assets that we could quickly turn into money for, for some future day. Right. So I started working backwards from there and thinking about projected levels of return and also thinking about what are our likely contributions to retirement accounts over the next five, 10, 15.

20 years, right? Kind of stretching it out and looking at it. And we're actually getting to a point that realistically, we could very likely consider some form of, of early [00:07:00] retirement within a decade or less. Right? So before 60 to put a, to put a round number on it. And as exciting as that is. It also, there's a part of me that it triggers that concerns me.

Because all it takes is the, the bad timing of one protracted downturn to push that number out years.

Jeff Santoro: Right. Cause the thing is like there will be another 2022 in terms of market returns. And if that happens using your example, that happens when you are. 57 or 58, you're, and you're not, if you've not made some changes, you're going to wish you had, but at the same time, if it, if you get to 57, 58 and nothing like that has happened for a while, you start to think like, Oh, I probably should have stayed in stocks more.

So like, I think you have to, I think you have to kind of come up with a plan and stick with it and try to stick with it no matter what is going on, you know, like, and that's, I, to your point, I think that's why you want to try to think about it earlier than later. Like, I know we're going [00:08:00] to get more into what you've been thinking, but real quick, just while we.

Our pause here for a sec. I've started to think about this too. Not so much from the standpoint of i'm really close to like that number or anything, but And I don't want to like go to cash. I don't want to have more bonds But i've started to think about do I want to have more in my stock portfolio?

Do I want to have more dividend paying stocks? Like do I want to start building a position in more stocks that pay dividends? So that many years down the road, five, 10, 15, 20 years down the road, maybe that's enough income to, you know, dividend income to make me not have to withdraw, you know, withdraw my account as much.

Right. So, and that's something I think you have to start to think about ahead of time. It's not like you can wake up one day when you're 62, sell. You know, 300, 000 worth of stocks and then just buy 300, 000 worth of dividend stocks. So that's, that's, that's like the first kind of seed of how I've been thinking about this too, but, but keep going.

Jason Hall: Yeah, no, I think that's exactly right. And I just want to say [00:09:00] this too. Probably should have said it about nine and a half minutes ago here is we're 10 minutes into the episode, but I think the big, the big thing I want to stress is that I think this is the sort of thought exercise that whether you're 45 or 55 or 35.

Is, is useful because time flies and you look up and you know, you're planning to retire in five years and we've just gone into a major recession, right? And the market's down and oh, by the way the company you work for is laying off workers. And Brian, Brian Withers shared that in his situation.

He didn't say it on the podcast with us, but he's told me before the day that he got his pink slip. Back in 2009 was the, was the Friday that the S and P 500 bottomed. So he was put in a situation without a substantial amount of cash savings. He was almost entirely [00:10:00] invested in stocks when the market was down 55 percent and he was out of work.

And he was probably going to need to sell some stocks to raise money at the worst possible time. And obviously that's kind of a worst case scenario where you're out of work and it's a terrible economy and you know, the market's down really bad. But there's versions of that that can undermine your plans and lots of other ways.

Jeff Santoro: One of the things I've been meaning to do, it's been on my to do list, personally, is to meet with a fee only financial advisor. Because I, I've done online calculators and I, I have websites where I like track my investments that will give you like projections on how you're trending towards retirement.

I think those are fairly accurate and correct. As we've been preparing for this episode, I've been thinking, you know, you, you mentioned that you're about to turn, uh, almost 50 and I'm about to turn 45. And 

Jason Hall: see, I didn't say I was almost 50, I said, I was almost [00:11:00] 48. Right. 

Jeff Santoro: Well, those were my words. I apologize.

Jason Hall: Your, your words that are true words. 

Jeff Santoro: But I mean, so this is the thing I'm thinking now, like maybe every five years, starting this year, as I, as I turned 45, my wife's a year younger than me. Maybe I do like every five year check in with a, financial advisor kind of thing. Cause that, you know, that puts me on track for 55, which is like the retirement age I can leave the teaching profession at, and 65, which is like the quote unquote standard retirement age, I think for a lot of people.

You know, every five years, and maybe I won't need to do it that frequently, but because I think, you know, you, you did a, a nice little projection in terms of like trying to map out like what, what returns might look like over the next five or 10 years. But, you know, for as much as you got, as you know, you, it's probably still good to talk to a professional and get an unbiased opinion.

Someone just coming in from the outside. 

Jason Hall: Well, another, another guest that we had on Robert Brokamp. With the Motley Fool ran the rule, your retirement service for as long as it's [00:12:00] existed, have a new product called game plan. That's kind of the same idea. Um, but I think a little more holistic and not just, you know, right at it in retirement.

But anyway, this is somebody that spent three decades helping build a vast amount of knowledge and experience about, you know, This exact topic that pays somebody to, uh, a fee to, to do this exact same exercise with him. He 

Jeff Santoro: is a CFP. Like he, he's the one you could hire to do this work and he still has someone else look at his stuff.

So I think that's, I 

Jason Hall: mean, this is, this is one of the top, I don't know, a couple hundred experts in the U S right. This is, this is an absolute subject matter expert that hires a professional. And I think there's a lesson to it too. You know what? If you're. If you're a plumber, you probably fix your own plumbing.

If you're a mechanic, you maybe you work on your own car, but if you're a heart surgeon, you go see another surgeon, right? And it's not to say that you can't [00:13:00] DIY. Financial planning, right? I mean, you can't do that. We could buy heart surgery if you just wanted to die. Um, but the point is, is that sometimes you need another expert to do it.

And I think when it comes to something like financial planning, and you're at these steps. There are so many blinders that we can have emotionally. And sometimes it's with our partner that there needs to be a 3rd party. It's a validate that the person who's not who's who it's not their full time job has you on the right path?

Right? 

Jeff Santoro: Yeah, I feel seen. That is no, that's an absolute thing. Like, I would imagine most I would imagine most people who listen. To our podcast are not people who write and think about investing as a full time job like you do. They're probably more like me who have, you know, nine to fives and some other profession, but this is just something that was really interesting to them.

And I think I would be willing to bet there's a lot of people. Who listen, who have spouses that could care less about this stuff. And it probably comes with some skepticism about the [00:14:00] hobbyists knowledge level, right? Rightfully so. Right. Yeah, yeah, yeah. Absolutely. 

Jason Hall: Yeah, absolutely. Let me, let me get on the soapbox for a minute about this topic because I, I'm, I'm, I'm talking to all my guys here.

I want you to listen up and I want you to, I want you to hear me closely. Don't go try to find some financial advisor. That's just going to tell your wife that you're right. You have to go into it without an ego. Trusting that this person is going to advise you things that you might be doing that they suggest you may be want to do differently, and you need to listen to them if you're not.

You're just you're trying to find somebody to help you win an argument. You're trying to be right. You're not trying to get it right. 

Jeff Santoro: Yeah. 

Jason Hall: Okay. 

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Just last thing on this, and then we can dive more into the conversation. Since you mentioned Robert Brokamp, one of the things that he has said many times, I've heard him say is you want to find a fee only financial advisor, which is someone who will do the job for a fee and not try to take a percentage of your portfolio.

And he always recommends the Garrett Planning Network and the, and NAFPA, the National Association of Financial Planning something. We will put the [00:17:00] links to both of those things in the transcript so you can find them very easily. But those are places to go where you can find certified financial planners who will do this work on a fee only basis.

And, and they have to act as a fiduciary for you, which means that's, that's the key, that's 

Jason Hall: the key, that's the keys that they're a fiduciary. And what that, that, that standard means is that they're bound to only offer you financial services and make recommendations of products that are in your, your best interest.

Uh, the vast majority of financial advisors, quote unquote, that's a sales term, by the way, that's not an actual certification. Financial advisor is just a fancy name for a salesperson. Most of them. Are not bound by a fiduciary standard, which means that they can recommend a product to you that they know there's something better out there, but they can recommend a product to you and it's a product that they make higher commissions on.

It's totally legal in most places for them to do that. And there's no I mean, I think it's morally corrupt to do it, but. They can, so be aware of that. [00:18:00] That's why it's important to have a fiduciary. So, 

Jeff Santoro: So now that we, now that we covered what, yeah, now that we covered what you should do, which is hire a professional, talk about what you're thinking about doing with, with no professional guidance.

Jason Hall: So, but I, I have had some professional guidance and we talked about this a little bit. When we were texting about it, you told me exactly what we just told our listeners there. And my kind of glib response is, you know, I, I work out with a CFP, a certified financial planner every, every week. And your response was pretty sure it was an eye rolling emoji. and something along the lines of don't let your sweaty weightlifting bro, you know, just agree with you or whatever.

It's like, you need to find somebody objective, right? Yeah. And I think it was really good advice. It's good reminder. Sometimes it's handy to have somebody in your life to do that too. So here's what I've been thinking about doing. All right. So again, the background man, it's been a great 15 years to be an investor.

That's been supercharged by a higher level of disposable income that we've had, that we've been able [00:19:00] to invest more than more than the average, um, which has worked out pretty well. And so kind of the short version here is I'm working backwards and looking at the numbers from where we are now. And if we, if we see over the next, these are somewhat fictional numbers to protect the innocent if we see around a 5% Rate of return over the next decade, 12 years with our current levels of, of contributions we'll hit our number our retirement number in, in less than 12 years.

So 5 percent is a pretty low threshold. Number one, number two. You never get just 5 percent a year, just like you never get just 10 percent a year. You know, sometimes we get negative 20. Sometimes we get plus 35 and I've started to think more and more because again, I'm almost entirely stocks. I have cash but I'm beginning to think maybe it's time Jeff to start [00:20:00] accelerating my transition of part of the portfolio into bonds.

Jeff Santoro: And I think what's interesting about, well, I want to ask why bonds and why not other things in a second. But I just want to say before we do that, like it, the fun part of this conversation for me is that you and I have very different what ages you're a lot older, but besides that we have very different compositions of our portfolios, right?

Like you, like you just said, you have some cash on the side for investing again, separate from your. Safety net cash. And then you have bonds. I mean, um, stocks, that's like, that's your whole portfolio. Whereas like, if you combine our stuff, it's mostly index funds and ETFs with some stocks. And then I have a pension, which I was telling you as we were planning, like I heard someone recently say, you know, if you're, if you know, you're going to get a pension, which is very few professions anymore, unfortunately, you can kind of think of that as, I know it's income.

Which is always how I thought about it, but someone framed it as the cash portion of your investment portfolio. Right. So like, you know, I know a lot of people in retirement will keep, [00:21:00] I know some people just from like discussion boards, Motley Fool have said that they keep five years of, of their expenses in cash in retirement.

You know, so I was picking a number, let's say you have a hundred thousand dollars a year you need for expenses. They have a million dollars in cash for exactly what. You would expect market downturn. I'm not selling stocks at the bottom to pay groceries. People with pension income can, that can be that part of their portfolio, right?

Cause it's guaranteed. You're going to have it, uh, which was an interesting way to think about it. So I'm not thinking as I don't think I'll be in a position of thinking about transitioning to bonds like you are, but that's not because it's not a smart move. It's because the composition of my. Expected retirement portfolio is very different than yours.

Jason Hall: Yeah. And, and so here's how I think about bonds and there's a couple of ways you can think about it. So, so boring, so boring, so boring. Um, this is 

Jeff Santoro: the section you want. You don't want to skip, but you probably want to listen to that like point 1. 75 speed or something. 

Jason Hall: Yeah. Maybe, maybe [00:22:00] even two X, but then you can't really understand Jeff.

If you go that, if you go, that's true. 

Jeff Santoro: Yeah. New Jersey people are hard to listen to on fast speeds. 

Jason Hall: Yeah. I mean, you 

Jeff Santoro: sound great. I have to say, I listened to you on other podcasts at like 1. 75. That's the perfect speed for you. 

Jason Hall: I sound normal. I sound like normal people at that speed. I'm guessing. Yeah. So the way I think about stocks is they're like the ceiling, right?

They're the, the, the growth you can just really go super duper high ceiling. And we've talked about it before, Jeff, where as individual investors, based on your timeframe, right. And you know, you have a long timeframe volatility, isn't a risk, right. It's more likely to be an opportunity than a risk.

And that's still broadly the case for me, even 10 years from now. Let's just say everything goes swimmingly and we decide 10 years from now, it's time to punch the corporate ticket and move into maybe not full retirement, maybe more something like what, uh, Brian Withers has done. 

Jeff Santoro: You just coast on that [00:23:00] sweet podcast income at that point.

Jason Hall: Yeah. Yeah. Thanks for listening to our ads. People. Click on the links. The, the point is that. Even at that point, I'm hoping to live another 20 plus years. I'm going to still count on owning stocks and growing that wealth to continue to, to, to afford the, the, the lifestyle that we're going to want to enjoy in retirement.

Right. And then when I'm too old to enjoy that to pay for a really nice senior facility. Yeah. Not the beds in the hallways ones either. I mean, like the really nice ones, the beds just in the rooms, maybe with another person in the room, man, this one's off the rails. We're a mess today. 

Jeff Santoro: Yeah. 

Jason Hall: So that's going to continue to be the, that reality.

But again, thinking about like the whole premise of risking what you can't afford to lose to try to game what you don't need.

I don't, I want to be mindful about that with, with kind of where I am. With, with the wealth that we've created so far, because again, it's a pretty low threshold of [00:24:00] returns that we need to generate over the next decade to be in a really good position. I'm really fortunate to be there, and I don't want to make the mistake of ignoring the uncontrollables that have led to this, to this success, right?

The zero interest rate environment and I'm not talking about just 2020 and 2021. I'm talking about all the way from the great financial crisis, all the way leading into. The pandemic was an exceptionally low a low interest rate environment that created this opportunity for low cost of capital to a lot of really great companies leverage to, to, to great returns for, for stock investors.

The story's changed now, Jeff, it, it really has even cash. You can get four and a half percent yield pretty easily on you get into investment grade corporate debt. You can get six, 7%. Treasuries 10 year treasuries, um, you can get pretty good yield and it's as rock solid as it gets. So, I, I just, I think it's time to start [00:25:00] making that transition.

Jeff Santoro: So, here's my question though. You, the The assumptions that you laid out for how long it'll take you to get to that number that allows you to retire, does a transition to bonds prior to that point, slow down that timeline? 

Jason Hall: Yeah. And that, again, based on, based on the assumptions that I'm making about the potential returns right now, I don't think it would.

Because so again, 

Jeff Santoro: because you're expecting 5%, which you're thinking is kind of conservative. Is that why? Well, 

Jason Hall: I mean, that's it again, starting again, starting from the beginning of this year, going through to my age 60 year, the math that I'm using that's kind of driving my thinking is actually 4. 2 percent average annual rate of return is what I'm thinking about based on that math, Jeff, I could move my entire portfolio into 10 year [00:26:00] treasuries and hit that threshold. 

Jeff Santoro: And I think I want to pause there because I think that's a important thing for people to consider because again, not an expert here in case anyone was wondering, but you hear bandied around.

Often that the average return of the stock market is 10%. And it has been historically, but I've also heard a lot of smart people say it would not be unreasonable to see the next decade underperform that average. And because for all the reasons you just mentioned, like we've, for as long as you and I have been adults thinking about money, interest rates have been historically low.

And. Let's say for the next 10 years, interest rates don't go much below where they are now, maybe a point or two. Does that, does that mean the next decade of returns is, you know, much different? So like, I, I think I like the way you thought about it with 5 percent as a huddle rate, because that's half of what the quote unquote stock market gets, right?

So like, that's a pretty conservative number to think about. And [00:27:00] then the nice thing about that is, is if the market, the market does, Okay. Continue to do well. And you over perform that it speeds up your timeline. And if it doesn't, it just slows it down a little bit. You know, but I think using a conservative number, I think is smart because you'd rather err on the side of being, having the money too, too soon than not having it when you need it.

Jason Hall: Yeah, no, that's exactly right. Well, and there's another part of this that's, that's, that's guiding, guiding my thought process too. And that's, there is a world in a world. Um, there is a world where. We go through a a five or longer year period where returns are zero, right from the beginning to the end. I think like the 1970s, well, not even, for example, it was a lost decade, not just that from 2000 to 2007 was a lost seven years, right?

Yeah. And then again, from, from that 2007 peak, when the market started selling off again, it [00:28:00] was another five and a half years for the market to fully recover. 

Jeff Santoro: I think it's, it's easy, especially for newer investors. Like again, if I, if I had come to investing entirely in 2000, in 2020 like I did to stock investing in 2020, like if I was right outta college in 2020, I might think that all market crashes are no longer than 18 months because the only thing I lived through was the pandemic flash crash and then

2020, which was about a year and a half ish. Right? But yeah, if you, you just mentioned a couple of those longer, you know, if you go peak to trough on some of these older or longer ago recessions and stuff, it can be 5, 7 to 10 years. You know, it's not always guaranteed to be like a year and a half.

Jason Hall: Yeah. Just, I mean, just as an example here from, from January 2000 the, the market started selling off and then it returned to the all time high in late 2007 for like 10 weeks. [00:29:00] And then the global financial crisis started and it was still below. The all time high in 2013 now that doesn't include total returns.

So you include dividends in, and it was only 11 years. 

Jeff Santoro: Only.

Jason Hall: With the exception of a couple of months in 2000, late 2007, when it was at highs again, before it, it sold off again. 

Jeff Santoro: So let me, so let me ask you this because you just mentioned dividend stocks and I referenced it earlier too. So when you think about ways you can start to think about transitioning Your portfolio into a little bit more preservation and a little bit less appreciation.

Why, why bonds? Why not things like T bills, cash, CDs in a high yield savings account? Yeah. Or, or even just dividend stocks, or, or do you think it might end up being in actuality when you actually do these things, it might end up being a combination of all those things. 

Jason Hall: Yeah, no, it's absolutely going to be a combination of these things.

[00:30:00] So like, for example, if we start with my portfolio today, the barbell approach that I've taken and the portfolio that I built is it has become I've, I've been increasingly invested more capital into buying dividend stocks. 

Jeff Santoro: So you, you kind of already started your transition without even kind of consciously starting it.

Jason Hall: Yeah, no, it's true. It's true. And it's, it's 10 years in the making that I've been kind of shifting away from just a growth focused investing mind to buy more dividend particularly dividend growth stocks, right? There's a good number that are higher yield, but really ones that are have a good history of growing that dividend over, over time is because, I mean, those are the companies that like they just, it's, it's.

Companies that grow their dividend, they already have accomplished all the things and they're growing and they have moats and they have margins and they have market share. And they have tailwinds because they grow their dividend every year, which means that they have a board that's smart enough to take the, the reins away from management to, to make bad app allocation decisions.

So they return more of it to [00:31:00] shareholders. So all of those things to say, like, I've already started that process. And so the reason, so This wasn't exactly the question you asked, but I think it's inferred. And what you were saying is why not more dividend stocks or why not more like income investing, um, assets like that.

And really it's about being mindful of over leveraging to, to stocks in general with tying up the capital. Because. When I'm thinking about the portfolio that I'm building and withdrawal rates thinking I'd withdraw, you know, between 4 and 5%. That would be, I would need to see the entire portfolio yielding 4 or 5%.

And there's a lot of companies that I own that. My anticipation is that a decade from now, they're still not going to be paying a dividend. They're still going to be growing. Right. And I don't want to push myself into a corner where everything that I own is exposed to the market's volatility. And again, it's kind of the same, the same situation which brings me back around [00:32:00] to, uh, to 

Jeff Santoro: bonds. 

Yeah, because you, I think you, if I'm understanding it correctly, like you're, you're, that money is less tied up permanently, right? Because at some point you get, like, you're getting the income from the bond, but when the bond matures, you also get the principal back. 

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Jason Hall: Yeah. So, we'll, we'll do, um, Jason's bond knowledge corner now.

So let's all go sit down kids. And, um, in two minutes 

Jeff Santoro: or less. Cause it is bonds. 

Jason Hall: Yeah. So stay awake, stay awake. We're going to pass out the espresso shots first. Everybody got their special shot? 

Jeff Santoro: Says in our show notes for this or for our planner, it says in less than two minutes. 

Jason Hall: I know, I know I'm not starting yet.

I'm starting now. I'm watching the clock. So owning bonds versus bond funds, ETFs or mutual funds or whatever. If you own a bond fund, you don't own the bond. You're an investor in the fund. The fund owns the bonds. The price of the, the fund, the ETF or the mutual fund that you own moves up or down based on the value of the bonds.

The secondary market value of the bonds, not the value of the bond when it matures, right? What the difference sell for that [00:34:00] day? The difference is if you buy a bond for a thousand dollars, that that pays a what? What equates to a 4% yield? You're always gonna get a 4% yield, but if interest rates move higher.

Then, then that 4 percent yield on comparable bonds and you want to sell that bond, you're going to have to discount it. Let's say interest rates move up to 5%. You'll have to discount the bond so that what somebody is buying it from you at, it would yield 5%, right? The beauty of owning the bond is you don't have, if you don't need to sell the bond, you don't sell the bond and you're happy just to get the income. 

Jeff Santoro: Just hold it to maturity. 

Jason Hall: And then it matures and you get all of your money back, assuming that the entity that issued it can afford to pay it off. Right? This is where treasuries are beautiful because of the full, full faith and backing of the federal government. Right? When you also print the money, you can find the money to pay back the bond.

Right? So. That's the beauty of treasuries T bills short term. That's like the the short term stuff to like the 30 day stuff all the way up to the 10, year [00:35:00] treasuries. They're ultra it's the safest, safest money in the world, right? You can get. Investment grade corporate debt as well.

That's that's, that's good. And that yields higher. So if you're dealing with large enough amounts of money cause usually you buy bonds, you're not, you're not going to buy less than a thousand dollars at a time of a single bond. You can, you can build a portfolio of bonds that matures in such a way that.

When you need the cash, the bomb will mature and you can get the cash, right? 

Jeff Santoro: Like a CD ladder. 

Jason Hall: Exactly. Exactly. So it's giving you income, you know, once a month, once a quarter, every year at the beginning of the year, the end of the year, whenever you need the income, right? You can buy the bonds that mature based on what you're trying to accomplish.

Like I said, the same way you'd build a CD ladder. Now, something we talked about when we were planning when you own that bond fund, it trades up and down based on changes in interest rates. That's why investors that owned a lot of bond funds got wiped out, you know, 20, 25 percent losses in [00:36:00] bonds. A couple of years ago when interest rates skyrocketed because when those rates went up, the market value of those bonds went down.

Right. So we're in a different place in the bond and the interest rate cycle right now, where as I'm making this transition, Jeff, honestly, I may buy bond ETFs, some mix of ETFs, uh, and maybe some individual bonds because we're in an environment where interest rates are going to be falling more likely than they're going to be going up.

So I'm not, I'm not concerned about getting wiped out in the same way. 

Jeff Santoro: Yeah, no, that'll, that'll make sense. I like the idea of thinking about. The bonds, like, I hadn't thought about this till we just talked about it. I like the idea of thinking about staggering the bonds, like a ladder, because, you know, it's, it's, to me, it's like the same point about having enough dividend income that maybe that can cover your bills, right?

Like if you, if you're able to have so much dividend income in your retirement, That you can, you know, pay all your bills all year round, either entirely [00:37:00] or mostly from dividend income, then logic would dictate that's less things you have to sell out of your portfolio for cash, right? Right. And I think you could look at the bond portion of a retirement portfolio as well.

Serving the same purpose if every month, three months, a year, six months, whatever you set it up as a bond matures and you can decide at that point, I need this cash now to pay my bills or I'm going to use this cash to buy another bond or put it in the savings account or whatever you decide to do with it.

So that's an interesting way. Way to think about it. So, all right, I got a question. What, what do you think you're going to, what do you think this is the next thing you're going to do, actually start making some changes or double check your plan with a professional? 

Jason Hall: So I've, like I said, I've been talking to this, this close friend of mine that this is his full time job is advising people.

So I'm going to have some more conversations there, but the plan that I've kind of laid out in my, in my brain is to [00:38:00] immediately and immediately doesn't mean tomorrow. It means in the very, yeah, yeah, yeah, no, I actually started before the market. 

Jeff Santoro: Every time I talk, you buy bonds. 

Jason Hall: I do. I do. That's exactly right. No, but, but, um, to immediately begin the process of shifting 5 percent of the portfolio into bonds.

And that's a process that I expect would take three to six months. I'm not going to rush it. I'm going to be thoughtful about what I'm doing. Make some hard decisions about which bond funds I would want to invest in. If I'm buying individual bonds what bonds I would want to buy because there's all kinds of, just like with, just like with options and just like with mortgages and just like with every other kind of financial contract out there, uh, you can buy a 30 day T bill.

You could buy a 30 year treasury. You could buy like 20 and 30 year debt that Microsoft and Apple issued, right? There's, there's all kinds of, of, of debt of all kinds of terms out there. And it can get just as [00:39:00] dangerous as penny stocks if you don't know what the hell you're doing. So it's really important to be mindful about.

Understanding the risk profiles, thinking about timelines and then allocating appropriately. And we've talked about this before, Jeff is I don't just have 5 percent of my portfolio laying around that. I want to transition this over, over. I have more than 5 percent of my portfolio in cash, but that's not sitting there necessarily just to start transitioning it into bonds.

So I'm going to need to start thinking about do I need, do I want to start trimming some of my positions? Is that going to be the selling part of my biggest winners? Trimming the weeds a little bit of both. Like there's still a lot to think through about, about how I want to do this. 

Jeff Santoro: So that's why I think if it were me and I was trying to do what you're trying to do.

One of the questions I would have for a professional is at what rate should I do this because I could see a scenario where it would actually, I like how you're thinking slow and steady, right? Do this over time, little bits at a [00:40:00] time. But I also worry that you could end up in a position where more of your.

Portfolio is in safe stuff too early and you could end up. So I would be curious, like if I was, if I was talking to a, a certified financial planner right now about this topic, one, one question would be, is it better to just do this quickly? Right. Is it better to figure out. Okay. This, this date is five years before I want to retire seven years or whatever the right date is.

And then within six months for three months, the whole transition happens versus spreading out the whole transition over a decade. Like I would want to know like, what's the right way to do it. So here's another question I wonder about what, what major market events could make you change this plan? If any? 

Jason Hall: I don't, I don't know that there is necessarily a major market event that would make me make that change unless we saw a substantial sell off.

Jeff Santoro: Yeah. [00:41:00] Like, so let's say we saw a massive drawdown in the next six months, let's say the stock market drops 30 percent between now and. Six months from now. 

Jason Hall: Right. 

Jeff Santoro: I would imagine you'd say to yourself, I can start this plan next year. 

Jason Hall: Well, six months from now, based on my current thinking, I'd be done with this, right?

I mean, realistically, I'd like to have most of this done by the end of the year. If, if I'm being honest, you know, within the next three months and part of my thinking is, is tied to this. I don't want to get caught up with timing the market. Because the more, I mean, we're at the markets down a little bit the past couple of days, but it's still within 3 percent of all time highs.

So, I mean, that's kind of means maybe it's a good time to do it, but you know what comes before all time highs previous all time highs, right? 

Jeff Santoro: I wouldn't expect you to change your plan on a regular, you know, there's all the statistics, right? Like once a year, you see a 5 percent drawdown and once every other year, you see a 10%, whatever the numbers are.

Right. Not there. I'm not accurate, but I'm directionally [00:42:00] correct. 

Jason Hall: Right. 

Jeff Santoro: I'm talking about like the once every five or 10 year event that were to happen as you were just starting this strategy. I'm curious if that would make you delay it a little. It seems like you should, because you're still far enough away where 

Jason Hall: it could.

Yeah. No, I think, I think you're absolutely right that it definitely could. But one of the reasons that I'm trying to be mindful about not just taking the cash that I have and just buying a bunch of bonds, you know what I mean? Um, and being thoughtful about the fact that that cash exists for a very specific purpose inside my portfolio, it's the dry powder to let me act when the market gives, gives us those opportunities once a year, once every five years, once every 15 years, right?

That we see those substantial drawdowns happen. So. Yeah, I guess what my, like the biggest thing that I've got to work by my work, my way through is what is the best way to generate the proceeds that I'll be using to transition into bonds, like [00:43:00] that initial 5%. So that I'm still in a position to act aggressively when we do get those market downturns.

Jeff Santoro: Well, that's interesting. Cause like that, if, if you're in the process of this transition and, and one of those big drawdowns happens that triggers your cash rules, you might as well just, you Move that investing cash straight to bonds. 

Jason Hall: Well, no, no, because then, no, because then it wouldn't be in cash. 

Jeff Santoro: Yeah, no, I guess I should.

No, no. I'm saying like what I just said was stupid now that I think about it, but like directionally, this is where I was going. You could theoretically simultaneously be buying stocks at a discount. And then selling stocks to buy bonds, 

Jason Hall: right? Right. So I think 

Jeff Santoro: about, you might as well just put the cash in the box, but yeah, 

Jason Hall: no, that's, but that's, but that points that you're, I think your point is a good one.

And that's one of the reasons I'm doing this now is because now's the time that I can choose to do it. 

Jeff Santoro: Versus you have to do it. 

Jason Hall: Versus I have to do it. And it's a terrible time to be doing it. 

Jeff Santoro: Yeah. Yeah. Yeah. No, that part. I understand. 

Jason Hall: Yeah. Yeah. But no, these are the kind [00:44:00] of things that I have to be thinking through.

And the biggest thing, and this is the biggest mistake I'm trying to avoid, Jeff. Learning lessons from people that you and I know that saw, you know, significant portfolios back in 2021 become, you know, 60 percent smaller over, over a two year period. And you know, I, I'm in a position right now that the market's back to all time high.

So fortunately for a lot of people that, that saw those losses, they recovered a lot of it. But, but I want to be actively making these choices now. Instead of waiting too long to be forced to be making those, those, I want to be making the decisions, um, coming from a position of strength versus a position of weakness.

So that's really what I'm trying to do. 

Jeff Santoro: Now, that makes a lot of sense. All right. Well, listen, I, I know we did actually plan this one out, but this, This was a fun kind of off the cuff conversation.

Like we went in a lot of different places that we did not plan to go. And I think that was interesting to kind of pick your brain on what you're thinking here. So I hope [00:45:00] people, uh, enjoyed this little journey into Jason's thought process. This is as close to being inside Jason's mind as possible. Brain is anyone wants to be, I think it's fair to say.

Jason Hall: That is the correct phrasing. That is correct. Now. Okay. Wake, wake up, everybody. Wake up, wake up. We have to do the disclosure now. Um, here it goes. Jeff and I love to give our answers to these hard investing questions out there. Talk about our transitions in life. And the fact that I'm near 50. You might be near 50, but just because I'm near 50, doesn't mean that you also have to be near 50.

Find your own answers. People. It's a metaphor. You can do it. All right, Jeff, my friend, we'll see you next time. 

Jeff Santoro: I'll see you next time.​