The Exchanges

Q I was just gonna say in like one sentence for each type, can you explain the difference between a revocable and a, obviously the term revocable and irrevocable are obvious, but what's the difference in the reasons why you would do one versus the other, like in a few sentences?

A So a revocable trust does not really do anything or come into play until you pass away. And all it does is that in some States, when you pass away, if you don't have anything, then a judge goes through this probate process and you're just paying a bunch of legal fees and you're taking six or 12 months where assets, where you wanted them to end up. If you have a revocable trust, when you pass away, it kind of comes to life and simplifies that process and irrevocable trust. As it sounds like it's irrevocable, but it's a much more significant document where, you know, you, Sean, are actually giving money away today. You're putting this trust. You can't control it the same way you used to. You can't get it back the same way you used to. And that might sound terrible. And, you know, people don't like that aspect. What they do like is from a liability perspective. If you suddenly defraud me and I sue you, that's not actually your money anymore. So I can't get that money from you because it's in this trust. And from estate planning purposes, that money is out of your estate today. So if you put an Nvidia share in there today and it's worth one dollar and then 10 years from now it's worth a hundred dollars, you're not, your estate doesn't get taxed on that appreciation. It just, um, gets taxed sort of at the value that you put in that.

AI assessment note: “a revocable trust does not really do anything or come into play until you pass away.”

Q your portfolio, and someone is willing to give you a one and a half million dollar loan, or a two million dollar loan. You kind of mentioned it, but basically, let's say the cost is five percent a year, and you know that you can put all of that money into an eight to 12%, you know, high dividend ETF. Would, would people do that or would they avoid that?

A Some people do it. I would say a key thing you said there is they're borrowing the amount they're borrowing. I think borrowing 10 or 20% of your portfolio is perfectly fine because the way these loans work is let's say you have, for simple math, a million dollar portfolio. You're allowed to have debt depending on the brokerage you're working with of let's call it 50, 60% of that. Um, so let's say it's 60%. You can have 600,000. Now, if your portfolio falls by half, the amount you're allowed to borrow will fall from 600,000 to 300,000 because a consistent ratio. So if you borrowed half in the beginning, you're at a high risk of getting this margin call if it falls. If you only borrowed 10% to start with, so you only borrowed a hundred dollars, the market would have to drop from a million all the way down to just 150,000 if you get margin called. And, you know, even the Great Depression, that would be a sort of surprising scenario. So I think the 10 to 20% There's plenty of people who do that, and that's not particularly aggressive. I think if you get over that for any sustained period of time, people in general don't do that because there's just too much risk from the volatility. Um, in terms of how they use it, some people use it just to juice their returns by a little bit. As you said, okay, I'll borrow 10%, and I'll put 10% more into, maybe it's just a broad index fund, maybe…

AI assessment note: “Some people do it. I would say a key thing you said there is”

Q they see that the profit looks nice, they'll take it out. And then are they taking it out because they have conviction and there's another investment they want to move that money into? Are they taking it out and then looking for an opportunity and sitting on the cash or moving it into something safer while they're looking for that opportunity? Like how do, how do they manage that portfolio?

A Yeah. Again, you know, different people, different approaches, but if I took the median or the modal person, they are probably more trimming a position when it has been too successful and just become an element of their portfolio that's making them nervous. They say, okay, I made this great bet on NVIDIA, but is now half my net worth is in NVIDIA. I still like the company, but I just don't feel comfortable with half my net worth being there. And there could be some black swan event tomorrow that causes that to fall by 50%, and I'm gonna be really unhappy if that happens. I think that's the more common thing of people say, hey, this is just too big, I'm gonna trim it, and I'll look for somewhere else to put it. Um, your most strategic person, who's probably not me, but, you know, there, there are these people out there, is gonna take a little bit more of that disciplined, okay, I now found opportunity number four, which is more attractive than opportunities one, two, and three, so I'm gonna sell a little bit of one, two, and three, and rebalance into four, and, you know, uh, again, improve my kind of, uh, total portfolio composition there. I just wouldn't hold yourself to that standard. You know, maybe you, that's sort of a journey you try and get there over time, But I think a lot of people are more in that just, I'm gonna sell something when either I lose convict, it becomes t…

AI assessment note: “trimming a position when it has been too successful and just become an element”

Q Okay. And so what have you seen from your community members on average in how they structure their portfolio to, so I guess, are, are they on average thinking about growth or preservation? Like what, what's more important to them, growth or preservation right now?

A Yeah. Fantastic question. Because I think anyone with rational could look at this in one or two ways. You could say, all right, if I've been fortunate enough that I have, let's say five times as much money as I need, you could either say, well, there's no need to take risks today. I can put it all in muni bonds. I can clip a two percent coupon and that's going to cover myself, you know, for the next 40 years and I'm done here. I never, I sleep well at night. Or you could say, hey, I have enough money that I could put it all in a triple never NASDAQ fund. And even if it drops two thirds, I still have plenty of money. And I think my expected value 30 years from now is much higher by doing that, and so I'm gonna go highly risk on, and I'm gonna accept the volatility and basically get paid for that volatility in the form of, of high returns at the end. I don't think there's a right answer to that. I think that is largely a personality question. Now to your question, hey, what do people do in practice? In practice, they take a much more risk on approach. We do a annual asset allocation benchmarking survey and ask, hey, between Stocks, bonds, cash, crypto, private credit, private equity, oil and gas, et cetera. Where do you keep your money? And I'd say the bond allocation is well south of 10%. So if you hear of a quote, typical portfolio being sixty-forty, in practice, I'll call it e…

AI assessment note: “In practice, they take a much more risk on approach.”

Q at this and I'm like, what am I supposed to do with this policy? It's got six years after that. Like I'll be 40 soon. You know, so I, I'm like, Do, do people have these life insurance? Do you hear these ultra high net worth individuals talking about life insurance and like, do they put them into trusts? Do they put beneficiaries individuals? Like that stuff is super confusing.

A Yeah, it's a fantastic question. I'd say the first thing, and if somebody takes away one thing from this, do not buy whole life insurance. The only person who is trying to sell you a whole life insurance is someone who's getting a commission on whole life insurance. So you mentioned term, that's of course a different beast from, ah, whether they call it whole life, variable life, index universal life, all fancy ways of saying that you're gonna pay a whole lot of commission and get something you don't really need. But within the term world, I think that really comes down, and this again should be quite cheap. If you're, if you're 40 and you want, I don't know, let's say a million dollars of coverage, we are not looking at A thousand a year, 10,000 a year. You're, you're looking at, you know, more like a thousand or 2000 a year for that coverage. And that really just comes down to, do you have, if you were to get hit by a bus tomorrow, is that going to be a problem for someone else? Clearly it's a problem for Sean, but do you have enough money that your wife will be fine with just what's in your brokerage account? Or do you have little kids and now, you know, your wife needs to raise those little kids and you're going to need an extra four million dollars in order to get them through high school and college. That that's really the way to think about is what time horizon will it b…

AI assessment note: “do not buy whole life insurance. The only person who is trying to sell you”

Q Okay. So another question about infrastructure before talking about investments, domestic versus foreign companies, trusts, bank accounts, um, especially there's a lot of Americans I imagine in your community Some of them may be living in the U.S., some of them may not be. How are they, on average, thinking about this for tax purposes, for liability, for, you know, for legal purposes, and whatnot?

A Yeah. I think there is some, there's some set of advisors who will advise you get really cute and be like, oh, set this trust in the Cook Islands because nobody can ever, ever come after you there, things like that. I think that's a pretty dangerous thing to do. The only reason that's relevant, if you are doing something really shady and any proper legal system would come after your assets and now you've parked them in the Cook Islands, but you know, one, that's probably not ethical to begin with. Second, you're then trusting the Cook Islands legal system to Protect your millions of dollars, and I think the risk that you did something really shady is probably smaller than that something shady happens in one of these shady countries, and now you don't have the recourse to a first world developed legal system, um, to, to protect yourself, so I think that is a bit, um, I, I, I don't know many people who actually follow that. Within, let, let's just talk about the US for a second, within there, there's different states that have different rules, there's a subs, you talk to any lawyer, they'll tell you, okay, you know, Nevada, South Dakota, Alaska, there's a, Delaware, there's a few of these that are sort of better than, uh, structured than others. If you're working within a U.S. state, it's basically the same thing, um, and you're having a very reputable framework, so I would just …

AI assessment note: “within there, there's different states that have different rules... Nevada, South Dakota, Alaska”