Ep 28 - Taylor Sohns - 3 (Rational) Reasons to Take Social Security at 62 (Or: How to Stop Deferring an Already Deferred Life)

The political party doesn't matter.

The American economy is so innovative.

It is an organism that changes and mutates and adapts to any set of rules that you put in front of them.

Companies weather the storm over time.

Don't let your political opinion and political biases as to the agenda of one party versus the next dictate the way you invest.

Hello, friends.

This is Tyler Gardner, welcoming you to another episode of Your Money Guide on the Side, where it is my job to simplify what seems complex, add nuance to what seems simple, and learn from and alongside some of the brightest minds in money, finance, and investing.

So let's get started and get you one step closer to where you need to be.

My guest today is Taylor Sons,

a CFP and proud owner.

of more financial credentials than most people have kitchen gadgets.

Taylor spent over a decade on Wall Street, working at some of the biggest investment firms.

You know, the ones that build the ETFs, mutual funds, and hedge funds we all pretend to fully understand.

These days, he's the co-founder and CEO of Life Goal Wealth Advisors, an independent financial advisory firm that helps real people build lives aligned with their values.

That background, 12 years inside the machine, now operating outside of it, makes him uniquely qualified to talk about the good, the bad, and the occasionally cringeworthy side of the financial advisory business.

And that is the primary reason I wanted to bring Taylor on the show in the first place.

He is incredibly, refreshingly, and wonderfully honest about what you can and should expect from the world of financial advising and asset management.

I am thrilled to offer you a wide-ranging and thought-provoking conversation with Taylor Taylor Sons.

I think that one of the things that drew me primarily to wanting to have this conversation with you is that out of all the advisors and investment managers and portfolio managers that I know, you are perhaps the only person.

other than myself, as a caveat, who believes in the arguments very strongly that you should take Social Security at 62.

So today I want to kind of unpack this idea of, is there a right answer?

Is it a black and white question?

Can you start by telling me just a little bit about what led you to challenge this idea that I believe is relatively traditionally inherited with a lot of financial advisors that you should just wait as long as you can?

What led you to say, you know what?

I'm going to try to throw that on its head for a minute.

Yeah, to be clear, if I wasn't legally obligated to put a dollar in Social Security, I would not.

So let's start out with that point.

But really, the numbers just come back to the math at the end of the day.

The math states that if money is handled responsibly and taken at 62 versus taken at full retirement age, you wind up beneficially impacted by taking it earlier on.

And that's just simple compound return math.

And that's exactly what the Social Security organization is doing in general is investing your money and knowing that they are going to have law of large numbers, a relatively consistent return pattern over time.

And they're going to pay you out according to that.

I would rather take it out myself, one, giving myself the flexibility if I need it, but if I don't need it, then invest it myself.

And I think a responsible human being in general can do better compounding those returns and putting themselves in a position where they will never, ever, ever, ever break even, regardless if they grow to 200 years old.

And pause on that one because when you say handled responsibly, I know I'm talking to someone who has worked in finance, who works with investment management.

For you, I think it's very straightforward to say, I'll handle it responsibly.

I know how to invest it.

But how would you position that argument for someone who says, Taylor, I don't necessarily know how to get my 7% year in, year out?

What would that argument become for the audience member listening who's a little more skeptical that they could get those same returns?

Yeah, and the reality is you have to face the facts.

And the facts are 7% doesn't happen in perpetuity, regardless of what you invest in.

So I think long-term, you can trust that 7% is a modest, reasonable return to expect.

With that, how do you go about getting it?

There are a couple very easy ETFs in the market that can be purchased that are multi-asset ETFs.

So it doesn't mean you're investing in the S ⁇ P 500.

It doesn't mean that you're invested in crypto.

It's a combination of all of those things under one umbrella managed by one of the largest organizations in the world, a firm like BlackRock, a firm like Franklin Templeton, T-Row Price, whomever that has the experts doing the investment on your behalf.

And this is a one-ticker symbol option in order to get you that diversified blend of assets that should over time get you 7% with a modest assumption.

One of the critiques that I get a lot is that if you wait until full retirement age or until 70, you get a much higher monthly benefit.

Monthly.

There's this obsession with monthly benefits.

Can you explore that a little bit and just say, kind of, I don't want to bias it and say, what's wrong with that thinking?

But can you tell me what's wrong with that thinking?

Well, listen, if you give me your money and I'll put it in my pocket, I say, I'll start giving it back to you in 10 years, you're going to get a higher payout in 10 years.

Like, that's just natural.

You're not getting the money up front.

What I think is a better way to look at this, and I know you've explored this topic, is what is the cumulative payout if you take it at 62, you add up all the monthly payments that you've received at 62 versus starting to take it at 70 or 67 at full retirement age.

When you add them all together, where is that break-even point?

It's a little bit dependent upon your own social security benefits, which you can get logging into SSA.gov, but you can go on there and look.

And I did the math for my cumulative.

So you just take them all, add them together.

My monthly benefit at 62 was roughly 28.60 per month and my monthly benefit at full retirement age of 67 was 4073 dollars a month when you just add together those nothing to do with compound returns nothing like that literally just sum up those numbers my break-even didn't happen until 79.

and reality is like let's call a spade a spade the average human in the united states male specifically myself lives to 75 these days.

So do we want to gamble and roll the dice that my genetics are really good and therefore over time I will have a broader, larger benefit by waiting?

Well, maybe that's the case.

But reality is there's a 50-50 chance of that happening.

Well, and there are two other things that have come up that I'm interested in exploring too.

Let's even set aside for a moment the life expectancy.

Can you explore even a little bit about, let's say, fine, at 81 years old, I do ultimately get past my break-even point and have have more money.

Is there still any reservation in your mind about taking it then?

Or would you, if you knew right now you would live until 90, would that change your thinking at all?

No, because I'm confident that I can invest that money in the market, just like the Social Security Association in general is confident that they can invest that money in the market, which is why they're delaying and then paying more over time.

They're investing that money on all of our behalves.

And law of large numbers, they know they're going to get a certain level of return over long periods of time.

I want to start stripping that money out as soon as I possibly can to invest it myself.

Again, at a modest 7% assumed return, you never, ever, ever, ever, ever break even.

And that part blew me away.

When I ran those numbers and I was trying to encourage more and more people to actually just sit down and spend 20 minutes running the numbers.

And I even want to highlight that because there's a great line in the big short where they say that the people who originally discovered the subprime housing crisis before it actually happened were the ones who chose to sit down and actually look.

I want to echo: like, you tell people to go to ssa.gov, and I can't tell you how many people have not, but just inherit the script that clearly it's a better idea to take Social Security later.

Where has your head gone with spousal benefits?

This is a trickier one because obviously, as you wait longer to take it, it can also impact greatly the younger spouse in the equation who can determine to take their own spousal benefits and then get more throughout life.

Has that played into your thinking at all?

Or have you had anyone challenge you in that regard?

Well, it's two ways of looking at that as well.

So when you think about a spousal benefit, their benefit is based on your primary insurance amount as the holder of the social security.

So if you have a spouse and therefore you delay it, your dollar amount goes up, the spousal benefit goes up as well, and they will be able to continue to carry that for a longer period of time because they're younger is basically the argument that you're making there.

Let's look at it this way too, though.

If you start taking at 62 and you have children under the age of 18, they also can benefit by the child's beneficial amount of taking your social security.

And I know that's a little bit more nuanced than the fact that, like, at the end of the day, how many 62-year-olds have children under the age of 18?

So it's that.

It's the second person is, if you have a disabled child in general, they can continue to draw on it.

Your spouse, your disabled parent, if you have that, is able to draw on your social security benefit.

So you taking it earlier allows them, that child, at a younger age, to continue to take it up until the age that they're 18.

So they get a larger benefit in the fact that they're taking it for more years until they hit that age of majority.

There's lots of nuance.

This is why our social security system is relatively defunct.

At the end of the day, not only is there a primary insurer that is taking out of our social security system, but their spouse, their ex-spouse, their children, their disabled parents, that's multiple parties that can all draw on one person's social security benefit.

And one person's social security benefit, you look at the 100% number, which is what SSA gives you, you can get as a family up to 180%

that number.

And you look at it and you're like, why is our social security basically insolvent?

Well,

there's part of the reason right there.

It's funny because even when people mention that it might be insolvent, I also challenge, I say, well, that's even more of a reason to take it at 62%.

Like,

exactly right.

Exactly right.

Even when I get the people who are saying, well, it's not even going to exist, I say, then you definitely want to take it earlier.

Right.

Take it while it's there, right?

Yeah, take it while it's there.

Right on the Social Security's website, it says, without significant action out of Congress, full Social Security benefits as they're listed today will stop in 2034, at which point they will be reduced to 80%.

If debt is the issue and we don't collect enough taxes on this side and we pay out too much on the other side, we need to start to cut that payout.

Social Security is the number one expense of the U.S.

government.

And has any of this changed how you think about investing?

We're bombarded with daily headlines.

And I know you know better than anyone that fear-mongering is a massive part of how we hear about these things and learn about these things.

And it's real when someone, especially if they're 50 years old right now, when someone hears I might not get this benefit in its full term, the way that I've expected to get it throughout my life, holy crap, I need to change something about what I'm doing today.

I need to change something about how I'm thinking about this.

And part of what you do is help clients and advise clients on managing investments based not only on long-term goals, but potentially on what's the market doing right now, what's going on in politics right now.

So how do you manage this type of angst with people coming to you saying, like, look, Taylor, if this goes under, what's the practical guidance for me thinking about how I invest for the future if this thing that I thought was potentially fixed income is no longer fixed income when I need it?

Yeah, so I think when you look at things from a broad standpoint in our debt issue as a country, we have $34-ish trillion dollars in debt right now.

And that budget deficit is perpetuating.

So we continue to take in less dollars in taxes than we pay out in benefits to Social Security and what we spend on military and what we spend on Medicare, all of those things.

So the debt issue is just growing and growing and growing.

And at some point, there becomes this point of realization that we need to...

correct this ship and correcting that ship it comes in one of a few different forms the really optimistic viewpoint is if we continue to pin taxes low, which is what the big beautiful bill is suggesting, then we will grow our way out of it.

And the economic growth will take off and therefore tax receipts will go up just because revenues are so much higher.

So that's option one.

And historically, that really hasn't panned out all that well.

Option number two is austerity, and that is cutting things like social security, right?

And then option three is you inflate your way out of it.

And if you inflate your way out of it and you just, you know, essentially create a less lucrative currency over time, I don't want to get too wonky here, but at the end of the day, that perpetuates a debt problem even further because that pushes up the yield curve.

And the yield curve moving up means the debt payments go higher.

So it really is not solved.

The only way that that gets solved is one of the first two.

So either needs to be that our country continues to proliferate and boom from an economic standpoint.

And even though we're collecting a lower percentage on tax, the overall tax revenue is high enough to offset that and cut that budget deficit that we're in.

The second one is austerity, and that's reality.

Like at some point, we're going to have to find some areas to cut.

The left-hand party, their thought is raise taxes.

And the right-hand side is keep taxes low, cut spending.

And that's the Republican side of things.

So, you know, which political party is in action and in power at that time, that's going to give you a more indicative nature of which one of those two is more likely to be the solution that comes to fruition.

I do think that people need to start planning ahead of this.

It would be the largest benefit to our budget deficit to cut Social Security.

It might be political suicide and it might not be likely to happen, but investing in financial planning is a law of probabilities.

And it is not a 0% chance that Social Security gets cut.

And therefore, coming into the age of retirement and 10, 15 years before, you need to start to think about: okay, I'm seeing this number right now.

Again, mine currently was $2,860 per month at age 62.

I'm seeing that number.

What does 80% look like?

And let's start to forecast my financial plan and goals based upon that, because I want a margin of safety.

Do I think it's likely that they cut it like that down 20%?

I don't think it's likely, but our budget situation at some point does meet a point of crossroad, and they do have to make decisions.

What will they do at that given time?

is up for debate.

And I want to turn back to an extent to, like, I just keep hearing all of the voices in my head responding to both you and to me when I talk about this stuff, all of the critiques that come up.

And another is, well, let's say I do take it at 62.

There's this myth that says I cannot keep working if I take Social Security at 62.

Can you tell me a little bit about what you found?

And I'm happy to chime in too with kind of where I've seen this discussion go of what happens if I choose to work, let's just say, full-time from 62 to 65, because Medicare tends to be the bigger concern that people have.

What do I do with this gap in insurance?

And any guidance for people to think through that versus what are the myths we're hearing versus what are the facts about that?

Yeah, so going back to the black and white, this is almost a no-brainer is take it at 62 if you're retired.

Right.

So let's caveat it with that.

If you're retired, not making substantial income or making under the income threshold, which is $23,000 to $24,000 at this point.

So that's when it becomes more of the no-brainer.

But all things being equal, taking it at 62, if you are retired, makes all the sense in the world to me.

And then to your point, it is fair to talk about the fact that when it comes to, hey, I just want to continue working.

And it becomes this question of, all right, well, how much money are you making?

Because anything above that 23,4, you start to have that reduction in that social security payout.

$1 for every $2 earned above that dollar amount.

And if you're making significant income above that, you can have the entirety of it stripped away and the benefit would be just non-existent, right?

And all the knock-on benefits of your children's benefits, your spouse's benefits, et cetera, they all get negated if you make too much money and wither away at that because your income is just too high.

So there is certainly an argument to be made that if your income's high enough where it's going to strip out that Social Security benefit to zero, is there really a reason to take it early at 62?

I don't know that there is.

But all things being equal, if you are retired, I think taking it at 62 becomes that no-brainer type mentality for all the aforementioned reasons that we gave there.

I'm interested to hear, because I haven't gone this deep with you on this particular topic, if you have a differentiated viewpoint on that specific topic.

I don't at all.

What I have is the only information that I have continued to gather there, which is interesting, is that that reduction and I want to make sure that the audience understands that I'm distinguishing here between

your base benefit.

So let's just say that if I go to SSA.gov today and I log in and I see that if I take it at 62, I get $2,500 a month.

If I take it at FRA, I get $3,000 a month.

That reduction is permanent, period.

There is no give back.

There's no claw back.

That doesn't come back to you at any point.

However, If you go to SSA.gov, and I'm taking this again directly from their website, and if I'm misinterpreting this, I need to know this.

But at FRA,

every bit of docked earnings, the $1 for every $2 over the 23-4,

all of that is recalculated back into the benefits, thereby given back to you in essence over time.

So it's a temporary docked, but it ultimately comes back into the planning, into the money.

And so you're not losing it.

And I guess I want people to understand that and to see that.

I don't have a different take on it at all.

I have the same take that when I talk about it, usually I'm referring to the fact that yes, I'd hopefully be retired at 62.

And no, this is not everyone's situation.

And as you know, too, it's very difficult on social media ever to try to talk about everybody's situation.

You're gonna miss something.

Even though I believe it's clear that you would kind of be a proponent if retiring at 62 to take it early, can you picture the ideal candidate to wait?

Let's unpack that nuance.

Like, who are the people that would say, look, I get what you're saying, Taylor, but I still think there are a couple considerations that would bring me to say 70 is just going to be smarter for me.

Who are those people who should maybe challenge what we're saying?

So I don't think anyone should wait until after their full retirement age.

Everything you just stated there is perfectly correct.

So if you're making too much money, at the age of 62 and you take Social Security early, you are reduced, not lost.

It gets recouped recouped when you turn to full retirement age.

You're 100% correct there.

But the reality is, if someone is at full retirement age at 67, it doesn't matter how much money they make.

So the person that should wait until they're 67 is the person that's making too much money enough to where that offset puts them down to $0 in monthly payment just based on the fact they make over $100,000, whatever that actual break-even number is.

And so that person doesn't stand any benefit in taking it early.

And it doesn't benefit their their spouse, their children under the age of majority, et cetera.

They all get reduced.

So there is no benefit there.

And you wind up in the same place at the end of the day with taking it early versus taking it at 67.

Now, one of the things that I dug in on, just to be clear on things, is I said, okay, is that reduced amount going to be paid out in a lump sum when I turn 67?

Because if that's the case, I'm all for it because I'll take that lump sum and invest it myself.

Again, back to my original proposition.

But that is not the case.

So if you're making an amount where your income is too high, it will reduce your Social Security benefit to zero.

That is the person that I'd say wait till 67, but don't wait till 72 or whatever that maximum age is.

Again, take that money, invest it responsibly if you don't need it, and give yourself the flexibility in life to enjoy it.

You know that unless something happens, and again, I think that that's political suicide for someone to strip social security benefits, maybe take it with this, maybe take it with this grain of of salt.

Consider it 80%

and then take that 80% and say, I know that 80% in all likelihood is going to continue in perpetuity unless Armageddon happens.

And spend that money freely.

Do your thing.

You've worked your entire life.

You deserve it.

Don't be a drunken sailor and spend above your means.

But nonetheless, like, that's what it's made for.

Have you lost any clients because you believe this?

Or

have you had anybody challenge you on this?

I mean, I'm completely joking about the losing, but have you had anyone anyone who's pushed back based on their age versus yours and saying something along the lines, not even necessarily condescending, you know, Taylor, you'll get it when you're actually 70.

Has anybody pushed back on you with that?

Yeah.

Hey, Taylor, you're 36.

My children are older than you?

Yes.

No, I think that when you ground things in numbers and in logic and you're able to portray it clearly to them, and it is very easy, like type into Google compound interest calculator and just take the monthly benefits that you have, show a 7% compounded, and say, hey, again, the only reason why you would not take it at 62 is if you don't need it.

Otherwise, like you need to take it, you need to spend it.

Or if you are going to take it at 62 and you don't need it, take it, put a 7% interest, put an assumed date of death and compound the returns starting at 62, given that number that the SSA.gov gives you.

And then take the 67 full retirement age and subtract five years because you're going to be compounding that less five years and do a 7% compounded return and perpetuate that to whatever the exact same age is.

But again, you're reducing it by five years because those are five years that you won't have that money.

And I can assure you that unless you go beyond 115 years old, you are not going to come to a result that has you being a better position by taking it at 67 versus 62.

You just hit on a wonderful practical piece of guidance for people that I know people resist daily, which is determine a date of death.

That's a fun thing.

More of a thought.

Right.

Well, and I guess where I'm going to is that I know that a big part of financial advising and investment management is becoming a hybrid structure these days with behavioral management, right?

And behavioral economics 101 is something that I would encourage everybody and their cousin to understand to invest responsibly.

We need to understand ourselves better than we ever would hope to imagine.

And usually we don't.

And therefore, financial advisors and investment managers can really help with this.

Do you ever get into any of the conversations with people where they say, look, like, I get the numbers.

I see what's on paper in front of me.

And this can even extend beyond Social Security.

Like, what are some of the biggest emotional challenges you see with people when they're thinking through retirement planning or planning for the future?

Oh, it's dramatic, the discrepancy between someone that has a high threshold for risk and someone that has a low threshold for risk.

And it is not age-dependent.

So everyone says, oh, based upon your age, you should be invested in X.

This year was a great case point.

And we can look back and say, all right, what clients did we hear from on April 9th, 10th, 11th, 12th?

That was after Trump announced the tariffs that we're going to hit, and you saw the market just gap downwards.

And it was violent.

And it wasn't old people that were calling us and saying, hey, my portfolio is seeing too much downside risk.

And it wasn't young people saying it.

One of our younger clients realized that day, and he had told us going into this, like, I have all the tolerance in the world for pain and volatility.

And we said, okay, we'll invest accordingly.

And we talked about some scenarios, comfortable, comfortable, comfortable, comfortable.

He called us afterwards.

And thank God the market snapped back relatively quickly because he said, I've never been more uncomfortable in my life.

And this is a 29-year-old that's done amazing in his career.

He said, That's just not me.

I realize that.

And he's like, Thank God we got the snap back because now we got to get out of jail-free card.

And essentially, we'll take this portfolio and tweak it meaningfully because it was just too much risk for him.

I've got to pause you only because this is one of the single most fascinating topics in financial management to me, which is the initial moment where somebody external helps a client or an investor determine their risk profile.

Can you reflect a little bit on that process of how do you do it as a firm?

Because I always battle with this.

There's the theoretical component.

I can sit down as investor A and say, oh, Taylor, I'm fine with risk.

I love risk.

I'm a very risky person.

And then we lose 50% of our portfolio, right?

And in reality, and it's a different case, like you just reflected on.

So how do you think through that process with people and help them learn more about what is your actual risk tolerance in life.

Yeah, and it's so funny the recency bias that's applicable in the market right now, because outside of this little gap downwards that we had this year and a 45-minute reprieve of the upward trend that we've been in for 15 years for COVID, since the great financial crisis, it's been a one-way street higher.

And the SP has annualized something like 13.5% over that timeframe, which is 35% above its long-term average.

So a lot of people are just like, hey, you know, stocks are just the place to be because I've had such a good experience here.

It's understandable how someone just gets comfortable with that.

But the way we kind of size things is we have just typical prototype questionnaires on the front end that helps us ascertain the level of risk.

And what it is is scenario analysis.

And so that starts to gauge out a little bit of what that risk tolerance is.

There's also questions on time horizon.

The longevity of someone's investment is the biggest arbiter as to how much risk they have inside of a strategy.

And so then what we'll also do is run through our financial planning software.

And the financial planning software starts to take a look at their current scenario.

Okay, here's how much income you're making.

Here's what all your investments look like at the current juncture.

Here's what your real estate exposure looks like.

Here's how much money you're spending.

And it pulls in all this stuff in live feeds.

So it's super nice because clients like it.

It's easy to do.

It spends 10 minutes they get everything loaded in and then it's updated on a perpetual basis.

And then the other side of it, you start to think about their goals with them.

Hey, I want to retire at 52.

Okay, you want to retire early at 52, and you want to have $30,000 in after-tax cash every month for the rest of your life.

And so what it starts to do is butt those together.

And it runs Monte Carlo simulations.

Okay, here's how you're currently invested.

What is the probability of you hitting that successful point of your goals at 52 years old?

And then what we'll start to do is tweak the portfolio.

Okay, if you increase the risk in this, does it increase that probability or reduce it?

But all of those things.

So it's not ever a cut and dry answer as to, okay, you're 52, you should be invested this way.

You're 28, you should be invested this way.

That's not it.

And have you had anybody that has gotten past kind of all of the initial litmus tests or kind of prescriptive, let's see where it is, and had to really have the conversation of, look, like, I know you thought you were here.

This is where you actually are.

Like, again, has there been that kind of behavioral, psychological component of we appreciate you said X, but you might have learned now through experience, again, back to Liberation Day, that once it's actually your money in the market, things have changed a little bit.

You know what the biggest detriment people have experienced has been?

Politics.

Yeah.

Investing based on politics, right?

So that pendulum swings.

Every four or every eight years, essentially, we move from one party to the next, and people get hyperbolic about the ability of their party, if they're Republican, to be a superior market-driving entity versus the Democratic Party and vice versa.

It's not either side.

But the folks that were just very anti-Trump came in and got incredibly defensive right out of the gates.

And so even looking last year as to the buildup of, hey, it looks like Trump is going to be the winner of this race, they started to curb their portfolio into a very, very defensive manner.

And the market's been volatile, right?

So it hasn't been hugely detrimental to them.

But at the end of the day, we all know the numbers when you zoom out.

The political party doesn't matter.

The American economy is so innovative.

It is an organism that changes and mutates and adapts to any set of rules that you put in front of them.

Companies weather the storm over time.

Don't let your political opinion and political biases as to the agenda of one party versus the next dictate the way you invest.

So, how do you have that conversation?

Because I feel like you also just hit on probably one of the most important conversations you can ever have with someone when you're managing their money is how to avoid conflating, again, the daily politics with a long-term vision.

How do you have that conversation when someone calls you and says, Taylor, I'm sorry, I know we had a plan.

I appreciate that plan.

It was a great plan, but I also just read the post this morning and now this is where my head is.

How do you coach them through that or talk them through that?

Well, logical outcomes don't always take place in the market.

The layman's logic to something, if you told me that bombs were launched in the Middle East between Israel and Iran, and then we stepped in to defend Israel and dropped bombs on nuclear facilities in Iran, logic would tell me the market's going to be down that day.

Well, that happened on Saturday night.

The first market open was on Monday.

And what did the market do?

It went up.

And you're like, well, I want to get the hell out of here.

I was scared to death.

Like, what do you mean the market's up, right?

So the market is also kind of this future discounting mechanism.

So the market does sometimes have the ability to kind of see around corners.

And it's not one person's brainpower, right?

The best thing about the market is there are millions of people investing in securities every day.

I'll kind of sidebar this and talk about individual stocks.

One of the things that we don't have a big belief in is that anyone has the ability to outperform buying individual stocks.

The reality is I see investing in individual stocks as an arrogant thought.

What I'm saying is that I know something more about Apple stock, if I'm buying it, than the millions and millions of people trading it every day with all of their brainpower that are setting that market price.

And so I am not arrogant enough to say that I know better, and therefore I am going to ascertain what the future value of Apple is better than anyone else and the collective brain power of millions, and therefore I'm not going to buy it.

And by the way, if we start buying individual stocks in a taxable account, you put yourself in tax jail as well.

So we won't go down that rabbit hole.

And then people will refute that with, hey, look at Warren Buffett.

He's been ultra successful.

And I asked them a couple of questions.

Do you read for eight hours a day company reports?

Okay, if you do, maybe that's box one check.

Do you have an army of analysts beneath you working on your behalf to dig in

even further?

Are you having direct conversations with Tim Cook about the direction of their business?

No, you're not doing any of those.

And so that is why it is hard for someone to outperform.

So is it safe to say that you believe in a more passive approach to investing?

Or do you kind of expose people to, look, there's passive investing, and this is one way we can go.

And here's what the tax efficiency would look like.

And here are some benefits to actively managed funds.

And here are some benefits to individual stock picking if it comes to a type of, let's say, direct indexing.

How do you kind of navigate those two splits with people?

Yeah, there's a lot of discrepancy out there in the market versus what is sold from a financial advisor's standpoint as a sophisticated product that you can't get elsewhere and therefore you need to come to me as a financial advisor.

And there's a lot of that that is absolutely missold.

I have some real gripes when it comes to direct indexing, which I won't go down that rabbit hole, but our portfolios are a massive blend of active and passive.

If you are buying a very, very, very efficient market in the U.S., if you want exposure to large cap growth, do I want to pay someone 70 to 130 basis points, 0.7 to 1.3%,

to buy large cap growth for me?

And they're going to buy Apple, Nvidia, Microsoft, Google.

No, I don't.

I want to take a very low-cost approach to get that access point.

That being said, we also absolutely find value in active management as well, and active management in areas that have the ability to differentiate.

So like the most extreme example would be things like alternative markets.

So I always tell people like one of the investments that we have most all of our clients in is farmland.

And they're like, wait, farmland's an investable asset?

And then so people start going and picking through and starting to find ETFs that have a farmland label on them.

And I tell them, don't touch an ETF that's in farmland with a 130-foot pole.

That's it.

For two reasons.

The function of an ETF is great because you can trade it all day, every day.

in and out, bang, bang, bang, bang, every five minutes.

Well, if you and I and 10,000 shareholders pool our money and the manager is then tasked with going out and buying acreage of farmland, what happens if half of us say, give me my money back?

Well, farmland's not a liquid asset, they can't fire sale that back onto the market.

So, if you're buying an ETF that is in the farmland space, you're getting one of two things: you're getting an ETF that actually has acreage of farmland with about 60% of the portfolio, and the other 40% is in cash to produce that liquidity needed when buyers say, Give me my money back, or you're buying buying an ETF that has John Deere, C.H.

Robinson stock, fertilizer stocks.

Are they farmland?

No, no, not at all.

They act very, very differently.

The value of farmland is a slow, consistent growth over time.

Those assets do not do that.

There's reasons for active and there are reasons for passive in everyone's portfolios.

And it takes a very logical thought to step back and say, okay, where is it that we want active, which costs more?

And where is it that we want passive?

And you need to know that the value needs to be there in order to choose the active option.

This is similar to kind of the discussion about social security, just and I'm so appreciative that you're digging into the nuance because, as we know from social media and even traditional media, it's so binary, it's so opposed.

It's either like passive indexing is the only way to go, or stock picking is the only way to go, or the people who are selling these products, it's the only way to go.

And what I appreciate more than anything already about how you're talking through this is that you're adding very clear nuance to, yes, let me tell you why this could benefit you.

So let's say that I'm someone who doesn't believe as much in the passive approach and wants to take a more active stance.

Who's the right person to do an active approach to the markets, right?

Because we hear all the time, don't try to time the markets, don't try to out guess the whole crowd.

But is there somebody listening?

Let's say that I've got a 50-year-old listening who says, look, I've got my core 80% in a total stock market fund and I'm fine with that.

It's low cost, tax efficient, we're good.

But I've got this 20% that I would like to be more active in.

There's two routes to kind of take when it comes to the active space.

So, one is the traditional active form, where it's you and I sitting here, and we're the portfolio managers, and we're wielding the portfolio exactly where we want it to go.

There's another form of active that is a little bit more nuanced.

It's almost the bridge of the gap between passive and that active form that I just described there.

And that's described in a couple of different ways.

Sometimes it's called smart beta.

Sometimes it's called factor investing.

Essentially, what it is, is it's going in and using essentially an algorithm to say, all right, I want to buy stocks in the U.S.

market that have a combination of low volatility and a high dividend.

Okay, now I'm not paying an active manager something like 1% to go out and buy those stocks based on those characteristics.

By the way, this is what a lot of active managers do.

And instead, I'm paying 0.08%

to iShares to go out and do that based on an algorithm.

And it's perfectly efficient.

When something goes from low volatility to high volatility, it's changed.

It's moved in and out of the portfolio.

And the great thing about an ETF, as opposed to a mutual fund or an individual stock position, is if you are in a taxable account, an ETF, all the movement inside that ETF, Let's give a hypothetical.

You buy inside that ETF, NVIDIA is bought.

And it goes up 4 billion percent and it's traded down because we've got too much risk in NVIDIA at this point if you own that individual stock and you trade NVIDIA down to pare back your exposure there in a taxable account bang there's capital gains tax being deployed upon you if you own that within an ETF and the underlying ETF cuts the exposure there's no capital gains tax paid by you as a shareholder that which is also different between a mutual fund.

If that scenario played out in a mutual fund, you would pay capital gains taxes.

And so one of the reasons that active, just to kind of peel this layer a little further, is

if you have a flexible mandate inside of an ETF where they can move into lots of different areas of the market and change the portfolio, that's indicative of something that should be held inside of an ETF because if it's going to massively swing, then it has the ability to do that with no tax implication.

Whereas if you wanted to massively swing your portfolio in a taxable account from semiconductors to healthcare to whatever, that's going to constantly have tax drag placed upon your portfolio where the ETF alleviates that.

Well, I will say firsthand, and for the SEC who may or may not be listening, I am not being paid to say this, but if I were to choose someone, because people write to me daily and do ask about this idea of if you were to choose an advisor, what would it look like?

Taylor is the type of person I would choose.

And if you don't believe that after listening to this episode, I would encourage you to understand the complexity of what's out there and that adding nuance and being transparent about these things is everything that we're looking for and trying to teach you and educate and help you.

So again, I know you have a ton to do.

I want to thank you for giving the depth of information that you gave today.

I will tell people too, I'm excited to invite you back.

Now I've got a list of 10 more and nothing

I want to talk to you about in the future.

But thank you so much, Taylor.

And, you know, and for those looking for you, it's all in the show notes where you can find Taylor going forward and continue to learn from from him.

Oh, you're the man.

Thank you so much for the time.

It's an absolute pleasure.

Thanks for tuning in to your money guide on the side.

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Until next time, I'm Tyler Gardner, your money guide on the side, and I truly hope this episode got you one step closer to where you need to be.