July 20, 2022

Why I’m Not Buying I Bonds, the “Flight to Safety,” and Optimism

Why I’m Not Buying I Bonds, the “Flight to Safety,” and Optimism

Plus, who *might* want to buy some.

Something I had never even heard of a year ago has been front and center in the financial news for the last few months: I Bonds.

But I suppose it makes sense: Nothing tempts those seeking performance and those seeking safety alike quite like a guaranteed nominal 9.62% rate of return, right?

But I fear they’re a distraction for young investors (and don’t worry, we address who they might make sense for in the episode). Plus, I invited Alan Ebright of Hodges Private Client—a wealth management firm in Dallas with $1B+ assets under management—on the show this week to talk about investor psychology and the self-defeating flight to safety. 

*Any information shared is not tax or legal advice, and is purely for informational purposes.

#MoneyWithKatie #IBonds #Investing #Bonds #PersonalFinance

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Mentioned in the Episode

- Nick Maggiulli's blog, Of Dollars & Data

- DALBAR Quantitative Analysis of Investor Behavior

- National Association of Personal Financial Advisors Database


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*Disclaimer: Hodges Private Client is a program offered through Hodges Capital Management, Inc. (“HCM”). HCM is an Investment Advisory Firm registered with the Securities and Exchange Commission (“SEC”), is a wholly owned subsidiary of Hodges Capital Holdings and serves as investment advisor to the Hodges Funds. HCM is affiliated with First Dallas Securities, Inc, a broker-dealer and investment advisor registered with the SEC.

This discussion is not intended to be a forecast of future events and should not be considered a recommendation to buy or sell any security. Past performance is not indicative of future results. Investing involves risk. Principal loss is possible. Investing in smaller companies involves additional risks such as limited liquidity and greater volatility. No current or prospective client should assume that information referenced in this communication is a recommendation to buy or sell any security or is a substitute for personalized investment advice from your individual advisor. HCM does not provide tax or legal advice. Consult your tax or legal advisor for any related questions.

All information referenced herein is from sources believed to be reliable and is provided as general market commentary and does not constitute investment advice. This material was created for informational purposes only and the opinions expressed are solely those of HCM. HCM shall not in any way be liable for claims and makes no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information. The data and information are provided as of the date referenced and are subject to change without notice.


Katie: Welcome back to The Money with Katie Show, #RichGirls and Boys. I'm your host, Katie Gatti Tassin. And this week we are talking about the flight to safety, aka how investors react when shit hits the fan. This episode was inspired by a little something you may have seen 498 headlines about so far: I bonds. I bonds, the secret weapon to fight inflation. The guaranteed return in a sea of red in your portfolios. As soon as the 9.62% rate for I bonds was announced, my DMs were flooded with people asking me if I was buying some, how much they should buy and what the catch was. I feel like I had never even heard of these things. And then suddenly it was all anyone could talk about. So today I want to break down a few things. Number one, what the I bond really even is. Number two, why I'm not buying any, and number three, who might want to buy some. 

So let's start with a quick basic rundown. What is an I bond? Before we can define the I bond, we should probably gloss over the definition for bonds in general. Bonds are fixed-income vehicles that typically act to complement stocks in your portfolio. As the lower risk, lower volatility investment. You are effectively loaning money to the government or a corporation, if you're buying corporate bonds, and they're paying you interest on the loan. An I bond specifically is issued by the US Treasury. And the intent is to help protect your money from inflation. The obvious notable caveat here is that the bonds are indexed to inflation, which means technically the real return, if we are to believe the CPI data, would actually be zero. If inflation is 9% and you get a 9% return on your I bonds, you're effectively just keeping your purchasing power the same, which isn't a bad thing, to be sure, but I think we hear 9% return and we assume it's a real return of 9% and that's not really true. It's a nominal return of 9%. 

I will add, however, that some people's personal rates of inflation may be a lot lower than 9%, or higher, since 9% is the consumer price index inflation rate. Meaning if you are buying the exact basket of goods that they are indexing to, yes, your rate is 9%. But if you're not—for example, if you don't drive very much, so you're not buying gas, and you own your own home, so you're not being subjected to rent inflation, and you don't buy many consumer goods, you may be experiencing a personal rate of inflation that's a lot less than 9%. 

Anyway, you have to buy these I bonds directly from the US Treasury at treasurydirect.gov, which is an online experience that's pretty much exactly what you would expect from a government-run website that looks like it hasn't been touched since 1993, but horrible UI UX aside, I bonds have a few stipulations. You can only invest $10,000 per person per year. So a married couple could theoretically throw in $20,000 per year. If you get a tax refund, you can invest an additional amount of up to $5,000 of that refund. And the rate changes every six months, in May and November. So if you lock in 9.62% at any point in that period, you will receive that rate for the next six months.

But to be clear, that is the annualized rate. It's more like 0.77% per month. And then it'll adjust based on the new inflation data. And last but not least, you have to hold it for a year to get your interest. And if you sell in less than five years, you give up the last three months of interest. The term on I bonds is technically 30 years. So they're not explicitly designed to be a short term store of value, though we're going to talk about them later in the episode like they are. Okay. So those are the basics, right? Oh, sorry. My cat, Sam, just jumped on the desk. One second. [noise] What is that? 

Betty: Katie? My bloopers hard drive is full.

Katie: Uh, who are you? 

Betty: I’m Betty, the bloopers robot, and my bloopers hard drive must be emptied.

Katie: Betty, the bloopers ro…okay. That's okay. You know, we edit the bloopers out, or we tack 'em onto the end of episodes from time to time. So let's get back to it. 

Betty: If my drive is not emptied, the unimaginable will happen. You must initialize. You must initialize. You must initialize. Destroy…destroy.

Katie: Okay. Okay. I'm initializing. I'm initializing! 

Betty: Bloopers initiated. 

Katie: Oh my God. Sam is like going apeshit. Hold on. Sam just lay on the keyboard and the whole thing moved. Okay, I'm going to wait because he's attacking me. He’s like hitting the keyboard really hard. The fact that he just jumped off the fucking table. I cannot. Okay. He's whacking the table with his tail. So one second. Sam, Sam, stop. There he goes. Okay. Let me try that over again. I'm going to start this one over. 'Cause he just came in and my nose is itchy. More on that after the break. But before we do go…dammit, Sam jumped off the desk. Okay, wait. Okay, I'm gonna feed him and then he'll leave us alone. Can you go over there, please? You over there? What do you want? Go ahead. Can you stop? Can you go somewhere else, please? Okay. Can you go somewhere else? He's being annoying. I think Sam had his butt in my face. 

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Shout out to Betty for collecting those for us, really, from the bottom of my heart, appreciate it. All right. So I just went over the basics of I bonds. Now, understandably, people were losing their shit over bonds that paid 9% per year, because we haven't seen anything like it since, well, the nineties, if memory serves. So why am I not buying any? Why is Scrooge McDuck personal finance blogger not buying I bonds? To me, whether or not someone should or should not be buying I bonds comes down to one thing: asset allocation. If you are a young investor, so twenties, thirties, forties even, and you have a 20, 30, 40 year timeline ahead of you, you are still in the early innings of this game, my friend. Your asset allocation should be primarily equities or other risk assets. You can define what feels risky for yourself. For example, I feel like real estate is risky. Others would say it's less risky, but anyway, if you're like me, you probably have a finite amount of income each year that you can devote to investing. Like you're not drawing from a bottomless well of cash for your investment decisions, right? You've probably got a few hundred bucks, or if you're lucky, a few thousand bucks each month that you can invest. 

And this is why I fear the I bond hype for young investors. To repeat the standard financial planning advice, most young people shouldn't have any more than 10% of their portfolio in bonds, assuming they have a relatively normal risk tolerance. Everyone's appetite for volatility and risk varies. So I can't make too many sweeping generalizations about this, but if I were to make one sweeping generalization, I'd say that most young investors don't need all that much bond exposure. Quite the contrary, actually. When you're young, historically, bear markets like the one we're in now are a blessing, because it means every dollar you invest into said market will buy more shares of whatever you're purchasing than it did during the last bull market. At the time of this writing, in July 2022, we're roughly 19% down from the beginning of the year, which means if I invested a hundred dollars into four shares at all-time highs right now, that same hundred dollars can buy roughly five shares of the exact same thing.

And we talk about this a lot in investing, that if you just keep buying over time, regardless of what the market is doing, you will get the average market return. You'll buy when it's high, you'll buy when it's low, and your cost basis will average out. I'm oversimplifying a little bit, but that's the basic premise of why dollar cost averaging into the market works, and where the whole average return thing comes from. To state it explicitly, your return is determined in part by the stock market itself, and in part by the price you pay for your shares. If you only ever bought shares during bull markets, your average returns would be paradoxically lower than someone who bought through bull and bear markets, because they paid less for some of theirs.

The problem right now, or rather I should say the temptation, is that rather than deploying our finite investable income to buy more shares at lower prices this year, you've got young investors opting instead to use that income-free fixed return: the 9.62% that I bonds are paying. And it feels like a psychologically safe move in the short term, because we're locking in a return in a year where everything is, candidly, on fire. But if we're diverting funds that we would have been investing in the bear market for our long-term returns to these short-term gains instead, we are no longer taking advantage of bear market prices.

So to extend our earlier example, we just used our hundred dollars to buy four shares when things were riding high, right? We're doing great. And then we didn't use our new hundred dollars to buy five shares when shit is hitting the skids. The unusual conditions that we're in right now have both people chasing performance and people chasing safety fleeing to the same asset, the I bond, which is really weird. I fear personally that it's a bit of a distraction for young investors who would be better served in the long run loading up on relatively cheap shares—they're not actually cheap, historically speaking, but compared to one year ago, they are cheap—while things are low. I shared the sentiment on Twitter, and one reply noted that we might not be at the bottom yet, which is true. We might not be, but that's the thing: Trying to wait for the bottom is just a euphemism for trying to time the market. And it means that we are not dollar cost averaging through the lows, which history tells us is how our biggest gains are made. 

So take this passage from Nick Maggiulli’s blog, Of Dollars and Data. He wrote it during the March 2020 sell-off, but it still rings true. He says, “nevertheless, there is a silver lining for investors who are buyers of equities right now. Every dollar they invest in the current market environment will grow to far more than one invested in the months prior, assuming that the market eventually recovers.” To demonstrate this, let's imagine you decided to invest $100 every month into US stocks, from September 1929 to November 1954. So this would be the 1929 crash and recovery. If you were to follow such a strategy, here's what a hundred dollars monthly payments would have grown to, including dividends and adjusted for inflation, by the time US stocks recovered in November 1954. And then he has this chart that shows the dollars that were invested during the crash itself had strikingly outsized performance. We will link the blog post in the show notes. He writes, “the closer you bought to the bottom in the summer of 1932, the greater the long-term benefit of that purchase.” Every hundred dollars invested at the lows would grow to $1,200, which is three times greater than the growth of a $100 purchase made in 1930, which would have just grown to $400.

So yes, the amounts in the chart that we will link in the show notes are biased, because the Dow's price recovery took multiple decades, but he goes on to explore all the other major drawdowns, and how much of a return premium you would've gotten if you invested through the drawdowns near the bottom. So right now, at about 19% down year to date, every dollar that you put in is going to go further than it would have just a few months ago when we were at all-time highs. And that is exactly why I fear the I bonds hype for young investors is a distraction from the long-term plan, because with I bonds, we will make 9% guaranteed this year, but we're probably sacrificing way more in the long run in order to do it.

My fear is some 23-year-old sees all the headlines about I bonds and says, huh, well, I have my first $10,000 to invest this year. I'm going to put it in I bonds and have a 100% bond allocation, instead of following through with my plan to invest it in the S&P 500 or the total stock market, or insert any other index fund here. Your twenties are not the time to flee to fixed income. They're the time to get greedy when everyone else is fleeing to fixed income. That's why I haven't adjusted my investment strategy at all in response to the bear market or the new I bond rates. And sure, I could identify my current bond exposure in my portfolio, cash out my current fixed income positions, and then plug that money into I bonds to get my bond exposure there. But ultimately that's a lot of selling, taxable events, and hassle to get what will amount to roughly $962 at most, since the maximum I can invest is $10,000 and we know the fixed rate is 9.62%. 

So why are we hearing about this now? Well, during drawdowns in the recent past, inflation wasn't as high. So we didn't even have this temptation to contend with. People do typically flee to fixed income and perceived safer assets during bear markets. But we haven't had a safer asset with this high of a return recently. But that does bring me to my next point, which is who might actually want to buy some of these and when it might make sense.

So to throw it back to our earlier asset allocation conversation, here's the deal. If you have money sitting in a high-yield savings account or in bonds already, that you were hoping to use in 18 months to two years from now for some big purchase, and it does not represent money that you would have invested in equities anyway, then I think I bonds might make sense, even though, as we've noted, they aren't intended to be a short-term investment. But since you can get six to nine months of 9.62% on an I bond, depending on when the rate changes and when you sell, it's preferable to the gains you would make in a high-yield savings account that pay, I don't know, 0.5%.

I want to caution you, though, because I see your wheels turning. If you have your emergency funds sitting in cash thinking, huh, well, I could always invest that pile of money, but if we are heading into a recession—or honestly, even if we're not, but we're just still in a period of economic slowdown and general precariousness—locking up your cash for a year is likely not the best way to proceed on paper. But let's say you've got your eye on a new car or a new house or a life-sized wax replica of Money with Katie that you're going to install in your formal dining room as a dinner party conversation piece. I am happy to pose for this. And let's say you were planning to go after said purchase in late 2023 or early 2024. Well, now you might have a case for taking some of that cash and investing it in I bonds instead. You'll still have to contend with the treasurydirect website that was built using Microsoft Paint in the first iteration of JavaScript, but for an annualized 9.62% return on cash that would have been collecting dust in your Chase savings account anyway, it's probably worth the hassle. 

One other thing to note, you will be taxed federally at your marginal tax rate as if the interest is ordinary income. So you can expect to take a 20%-ish haircut, most likely, on those gains, but hey, it's still better than nothing. 

Realistically though, let's be real. If we're talking a married couple that has $20k sitting in a house down payment fund for January 2024, and they each decide to throw $10k into I bonds, and lock in six months of 9.62%, and then six more months of, you know, let's assume it stays the same 9.62% again. And then they wait three more months so they get a full year of interest before cashing out. It amounts to roughly $2,000 worth of gains. Let's say they are in the 24% tax bracket. So that eats up $480 in taxes. And you've got about $1,500 of profit. If you are trying to buy a house and your down payment needs to be $50k and you've got $20k right now, at the end of the day, that $1,500 is not going to go very far. Not to say we wouldn't take it, but it’s not life-changing money, right? 

So all that to say, if you are itching to get your hands on some of these bad boys, go for it, but if you're not quite sold or you don't really want a hassle, in the long run, you're not missing out on much, because even the maximum potential gain after putting in the most you can for the next year is only about $1,500 after taxes. Nothing to sneeze at, but likely nothing to lose sleep over either. Okay. With that…now Georgia is barking. 

Betty: Katie, my Bean Dog bloopers hard drive is full. 

Katie: Spare me the weak plot setup, buddy, just initialize. 

Betty: Bloopers initiated. 

Katie: Georgia’s barking. Let me give that a second. Sorry, I got distracted, ’cause Beans is barking. Now we wait. Hey, Georgia, Beans, stop. That's enough. Oh, it's ’cause our, literally our neighbor’s walking by. Oh, FedEx man. Let's see what we're getting. Our 85-year-old neighbor. Oh, mailman. I wonder what the FedEx man thinks of our house. Like at this point he's driving away. I don't know why she's still…thanks for alerting me to that, Georgia. I appreciate that. Okay, I think she stopped. Okay. Let's see if she'll stop. Almost gone. She's still going. Also, look at this picture I took of Georgia today. Doesn't she look like a mom on Christmas morning, like watching her children open presents?
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Okay. I suppose the blooper hard drives are empty now, but something tells me we're going to rapidly accumulate more and need to initialize Betty again. 

All right, with that, let's welcome today's guest, Alan Ebright, the director of client relationships at Hodges Private Client in Dallas, Texas. Alan and I became friends via email after a few exchanges about my blog posts, and he is joining us for the show today. As a reminder, though Alan works in finance, this is not professional financial advice, and there is a full disclosure notice in the show notes for anyone interested in diving headfirst into some very riveting legalese. But with that said, Alan, welcome to The Money with Katie Show. Thanks for being here. 

Alan Ebright: Hey, thanks for having me on the show. It's good to finally talk to you in person. Katie: Yeah, absolutely. So Alan, this episode is all about I bonds, which are, you know, this thing that I feel like I keep hearing about in the media ad nauseam. But in a broader sense, it's about investor behavior and psychological temptations. Why do most people underperform the index into which they have invested? Like, can you speak to the sentiment of, hey, things don't look great right now; I'm going to wait in cash, or I'm going to go do something that's a little bit safer until I feel better. 

Alan Ebright: Yeah. And you try to pinpoint why a lot of people don't match the performance of the S&P 500, as an example. It usually comes down to the temperament of the person. And what I think would be a good thing to discuss first—and we use this as a framework for a lot of the podcast is, if you go to Dalbar, Inc.—and Dalbar is a financial services market research firms, they're out of Massachusetts—they do this annual thing called the Quantitative Analysis of Investor Behavior. And what they do is they look at the trailing 30-year return on the S&P 500, which in the most recent 30-year iteration was from January of '92 through December of 2021. And the S&P returned something in the neighborhood like 10.6% annualized. But their statistical sampling of the individual investor came up with something that's right around 7.13%. And you sit here and go, well, wait a minute, this should be easy. I've pulled up a chart of the S&P for the last 30 years, really simple. I'm going to contribute my 401(k) when I'm working and boom, you know, I'm 20 years old or 25 years old. When I'm 55, 60, I'm going to have plenty of money, and it should be that easy. But the reality is, is that there come a lot of temptations along the way. And then when we get into volatility like we do now, it makes people rethink, well, I should do something different right now. 

Katie: So what role do you think comparison plays in these decisions? 

Alan Ebright: I think that comparison is always something that you have to do when you're looking at options to put your money. And so the comparison going on with the I bonds is, wow, 9.6%. I'm looking at a down 20% S&P, remind me what happened over the last six months, because when we ended 2021 it looked like this thing was just going to keep going, and no, we get a Ukraine/Russia conflict, runaway inflation—ahhh, what do I do now? It's that kind of fight or flight mechanism that all of us come hardwired with, and having these feelings is a normal human reaction, right? You wouldn't be human if you didn't experience some sort of emotion along your investment path, right? We're all subjected to that. But when you look at that analysis—and I'll give you some numbers here that I'm pulling straight off of the Dalbar site, is $100,000 invested in the S&P 500 in 1992 was worth a little over $2 million at the end of last year. 

Katie: Oh my God. 

Alan Ebright: Incredible, right? You put $100,000 in 30 years ago, you didn't contribute anything to it, it should have spit out a result that was a little over $2 million. The average investor ended up with $789,000. 

Katie: That really hurts. Okay. Yes. And I think we've been harping on this idea a lot here in Money with Katie World, which is that it's very easy to say, oh, I'll definitely stay the course. Yeah, I just dollar cost average in, you know, what could be easier? It's easy to do that when things are going up. And then the second you are down 20% and there is this alternative that's, you know, a guaranteed 9.62% rate of return, it's like, oh, well, but what if I just deviated from the course a little bit? And I don't think that that's to say that diversification isn't a good thing. But if you are reacting to the market being down by changing your approach or your strategy, then that's fundamentally a little bit different. So can you talk about your perspective on the proper level of diversification for a young investor who's got a long investing lifetime ahead of them, like hopefully 30 years or more? 

Alan Ebright: Right. So time is on your side as an investor, right? You take a certain amount of money. You put it to work in the equity market. You let it do its thing and you're rewarded over time. So if you're in your twenties, you're in your thirties, even in your forties, you're probably going to be working until you're in your mid to late sixties. And, you know, time and time again, equities over the long term have been a really good way to compound your money. And I would tell people, use these corrections to your advantage. 

And humorously, you need to kind of flip it around in how you look at a correction. So pick your favorite store that you shop at. I'm not talking about a grocery store or Target, you know, something that has pretty expensive clothes or shoes or something like that.

Katie: Chanel. 

Alan Ebright: There you go. Chanel, which probably never goes on sale. But for the sake of the argument, you know, if you saw Chanel having a 10% off sale, you'd make a mental note: Next time you're at the mall, you'll probably drop by. If you saw a 20% off sale, you'd probably go that week… 

Katie: Yep, making a special trip. 

Alan Ebright: No doubt, this is the number one thing we're going to do this week, is hit the Chanel store. But if you saw 30% to 40%, you would probably leave skid marks in your driveway, beating everybody to the store. 

Katie: Oh man, I love it. Right? And we don't take that approach with equities. 

Alan Ebright: We don't, we look at it and we go the other way. We go, oh my God, it's down 30%. Arrgghh, you know? That, to somebody who is in their accumulation phase, should be welcomed. That's when you want to definitely stay the course. If you haven't been maxing out your 401(k) and you can afford to do so, that's a perfect time to start maxing it out. If you have other money that you've kind of earmarked for investment, not big ticket purchases, that would be another time to start to step in. So use those downturns to your advantage. 

Katie: Yeah. So on that note, anything else you would say right now to someone who is tempted to scrap the whole plan and try to stop the bleeding?

Alan Ebright: You can't do it. You have to kind of fight that little thing inside of you that might say, ahhh, the market's down. We don't know what's going on. There's a midterm election coming. The Fed really can't seem to even get it straight on how long this inflation thing's going to last. I get it. There's a lot of negative news going on right now. So intuitively it's like, boy, 9.6%. I better jump over here and try some of that. There's nothing wrong with taking a portion of your money and doing that. But I think your question about scrapping the whole thing? That is something that I would not recommend anybody do at junctures like this. 

Katie: The one group that I have kind of conceded that might make sense or be a good customer for an I bond would be somebody that was going to hold that money in cash anyway, and wanted the money a year to 18 months from now. Other than that, I can't really think of somebody else or some other reason why at, you know, 25, 35, I mean, even into your forties, if you have a long time horizon ahead of you still, that it would really make sense to deviate very strongly from the predetermined course, particularly because you likely only have a predefined amount of income this year to invest. And if you choose to pursue something safer and not invest in these…through a bear market, well, there will be a long-term cost associated with that. So any last words on I bonds, Alan, anything else you'd want to add? 

Alan Ebright: No, I think you've summed that up correctly. You know, something that's going to give you a little bit of yield like that, that's above and beyond a lot of what other yields you can find out there, there's nothing wrong with that. But you know, the math that you kind of went through, that's something to be aware of too, right? These different fixed income instruments sometimes have a lot of things you have to read the fine print on them, with respect to redemption and interest rate crediting and all of that. So kind of look before you take that leap of faith, right? 

Katie: Yeah. And man, that website, treasurydirect.gov, does not make it easy to take that leap of faith. They put all the friction in there for you. So if this episode didn't give you pause, I think the user experience of the government website probably will. But Alan, thank you so much for being here. It was a pleasure. 

Alan Ebright: Thank you. 

Katie: All right, everybody, to close us out this week, we've got another Rich Girl Roundup. As a reminder, we will take listener questions every month. I'll put a call for questions on Instagram. So follow Money with Katie on Instagram, if you're not already—shameless plug—and we will pick one that feels interesting and widely applicable, and we'll answer it. As my standard disclaimer, I am not a licensed financial professional. This is not financial advice. This is just “What would Katie do if she were you?” This segment is brought to you by Betterment, giving you the tools, inspiration and support you need to become a better investor. Here's this week's question from Mary. 

Henah, senior editor: Henah here. This week's question from Mary, calling into Rich Girl Nation from Colorado. “What's the exact difference between financial planners, consultants, and advisors? What should a good financial resource be able to do for me? And how much should each of these cost?” 

Katie: This is a great question, and likely a pretty popular one. The amount of designations and licenses in the financial services industry is plentiful, way too many to name. And it can be hard to decipher between them, since there are confusing and sometimes interchangeable terms thrown around that can mean a lot of different things. So this is by no means an exhaustive list, but I'll run through a few of the popular ones and some ways to think about this. So you've probably heard the term financial advisor, which could mean someone who has a CFP designation, meaning they're a certified financial planner—it's a very comprehensive exam. Or someone who primarily makes their income from selling high-commission insurance products, meaning they're more of a broker/dealer, which to be fair, insurance sales is a valid job, but it is tricky for the consumer when their job title obscures that fact. And while they do have a duty to do it suitable for you, it's a lower standard, and they mostly make money if you buy insurance and other commission products. So there is a bit of a conflict of interest. 

You've also got the CPA realm. So think accountants. I think this raises the first important question that you want to be asking yourself, which is what type of help do you want? Do you want someone who can prepare your taxes for you? Do you want someone who's going to do full service financial planning, someone to manage your investments for you in an ongoing way? Do you want someone to make you a financial plan one time that you can then execute yourself? The answer to these questions will help inform what type of help is right for you, if you need it at all. 

Which brings me to the crux of my answer, which is, if you have a lot of money—and I'm going to go out on a limb and say multiple seven figures—and you have complexities with taxes and trusts and real estate and businesses or complicated streams of income, it probably makes sense to hire a fiduciary financial advisor with a CFP designation, from a firm that has CPAs on staff who can help you manage that. If you have less than a million dollars, I would say it's probably less worth it, but that's a personal judgment call. I just don't think professional help is necessary for your average person with a W-2 job and a straightforward situation. Particularly the average person who listens to personal finance podcasts and likely has the basics down. So you may decide that you really would like somebody to be involved so that you can be completely hands off, even if you don't have seven figures in the bank. And you might think that extra costs are worthwhile to you. 

So that brings me to my final point, which is how you pay for this type of professional help. So ideally you would pay via a fee-only model, wherein you are charged by the hour or by the plan, as opposed to an assets under management model, also known as AUM, where the firm or person responsible for your money is paid a seemingly small percentage of your net worth every single year, regardless of whether your assets are up or down. And it can be quite high. So it's good to ask, if you are thinking of pursuing that route. Fees have been generally trending down, but I would be wary of anything much over 0.5%, because at that point it's gonna start to compound quickly. I would avoid a 1% fee like the plague, but that's just me, simply because it is very difficult for someone to provide a commensurate amount of value for the amount you will be paying them over time as that 1% fee compounds. I think NerdWallet actually did a study that estimated the average millennial paying a 1% fee will pay between $500,000 and $600,000 in fees over their lifetime. So it's just something to be cautious of. You can find a fee-only advisor with the NAPFA database, if you're interested. It's the National Association of Personal Financial Advisors. We will link that in the show notes, but my TL;DR on this entire answer is unless you have a pretty complex situation or a lot of money, you probably don't need professional help yet.

All right. Y'all, that's all for this week. I will see you next week, same time, same place, on The Money with Katie Show. Our show is a production of Morning Brew and is produced by Nick Torres and me! Sarah Singer is our VP of multimedia, and additional content editing comes from our lovely senior editor, Henah Velez. Sam Cat is our VP of chaos, and Jojo Beans is the chief of woof, barking at the mailman every time he walks by, whenever we are recording this show.

Betty: Katie, have you considered keeping your pets outside while you record?

Katie: Betty, you are so fired.