The Liquidity Event Podcast: Episode 71

 

Episode 71: 'Tis the Season to Spend Money

This week, we have two guest hosts covering all you need to know about fintech and holiday spending. Join BKFi Director of Financial Planning John Owens and Associate Financial Planner Kurtis Rohlf as they discuss mutual funds, office bullying, the metaverse, must-know facts about holiday spending, and Robinhood's pursuit of retirement dollars. Bundle up, listeners, because winter is coming!

Read the Full Transcript:

Speaker:

This podcast is for informational purposes only and should not be considered tax or investment advice. Welcome to the Liquidity Event, a show about all things personal finance with a laser focus on equity compensation. Hosted by AJ and Shane of Brooklyn FI, each episode will take you through the week's news on FinTech IPOs, facts, founder wins and fails, Crypto, and whatever else these nerds think is interesting. Learn more and subscribe today at brooklynfi.com.

John:

Welcome to the Liquidity Event. We're your hosts, John...

Kurtis:

And Kurtis.

John:

Pinch hitting for AJ and Shane this week. This is episode 71 of the Liquidity Event being recorded here on Wednesday, September 7th, 2022, airing on Friday, December 9th, 2022. This week we'll be discussing a variety of topics, including how mutual funds don't beat the market, how people are being naughty as they go back to work, and COVID is winding down, back to the office, how the metaverse isn't really making any money, at least not for Meta. And as we get ready for the holidays, what does the 12 days of Christmas cost? Has inflation also impacted that? We'll squeeze in a few other articles if we have time. In particular, Robinhood wants to take care of your 401k match. But excited to be talking about all that, but even more excited, Kurtis, to be sitting alongside you. How you doing?

Kurtis:

I'm doing great. It's wonderful to be here with you, John. It's third time on here. I'm having a lot of fun. Just loving life.

John:

Awesome. As you can see, Kurtis and I, for those of you watching, have our ugly sweaters on. I've got some dancing bears and Kurtis, what do you have there? Is that Santa on a unicorn?

Kurtis:

Santa is riding a unicorn with a sword. It's-

John:

Pretty.

Kurtis:

Something else.

John:

Love to see it. It's not something you see every day, for sure. But yeah, very excited for that. And countdown is on here, only a few more shopping weeks left until Christmas.

Kurtis:

Yep. It's sneaking up almost like it always does.

John:

So tell me a little bit, Kurtis, you watch anything these days? Anything good? It's that that time of year where I feel like you pick up a new show, start to binge. So what are you watching?

Kurtis:

For sure. No, I've wrapped up a couple shows. I've been doing the old school where they drop an episode a week, so I just finished up Andor, which is a Star Wars show.

John:

That's a prequel, right?

Kurtis:

It's a prequel to Rogue One. Yeah. It's the life story of Cassian Andor who's the main male character in Rogue One, basically.

John:

Got it.

Kurtis:

It's fascinating, all about rebellion of course. And also I've been watching The Peripheral, which is made by the folks who do Westworld on Amazon Prime. It's trippy.

John:

Got it.

Kurtis:

How about you, John?

John:

Got it. Well, it's the holidays, right? And so I'm kind of in between shows at the moment. As I mentioned last week on the podcast, I'm nursing the White Lotus, but of course that's only one episode a week. And so I've been leaning into the holiday movies and recently watched National Lampoon's Christmas Vacation.

Kurtis:

Classic.

John:

Kind of goes along with the theme and good old Clark Griswold just trying to be a good old American dad and everybody else gets in the way. I'm a huge Chevy Chase fan, although I've heard some things about him. I'm not sure everybody's a huge fan, but love Chevy, love that movie, and just love some of the holiday movies that are out, and it's the time of year to watch them. So that's where I'm at.

Kurtis:

Absolutely.

John:

Where are you in the world, Kurtis? Any cool life updates on your end? You've had some fun stuff going on. You were out a little bit last week. Plug your better half.

Kurtis:

I will plug my better half. So I am still near Sacramento, California, not anywhere exotic, but my wife just defended her dissertation last week and is now-

John:

Awesome.

Kurtis:

Officially a doctor. She did her degree in biomedical engineering, so one of those easy focuses.

John:

Yeah, she wanted to be a financial planner, but she's decided she'd rather do that instead. Also, no congratulations to Dr. [inaudible 00:04:23], your bride.

So awesome. Let's get into it. We got a few articles here this week. New York Times did a deep dive here on mutual funds. They looked at 2132 mutual funds over the past five years and found not a single one of them consistently outperformed the US stock or bond market. Are we surprised here? Are we surprised that actively managed mutual funds are not outperforming the indices that they're tied to?

Kurtis:

I'm certainly not, John. This is exactly what we preach to our investment management. And this is, it's like the bet that Bogle made back, was that in 2000? Still holds true. ETFs versus a managed account, ETFs are always going to win out.

John:

And yeah, we're talking about active management in the terms of stock picking. And so portfolio managers go in, they evaluate companies, they look at macro trends, they try to outperform the broader market, and you pay them more to do that. And so the expense ratio on a mutual fund that's [inaudible 00:05:24] managed is typically several multiples higher than it is for an index fund ETF. We're using those terms interchangeably, but we're talking about, compared to buying the SV 500 as opposed to buying a large cap mutual fund that owns maybe a hundred companies in it. And so basically it's New York Times data comes out and says, "I found not a single mutual fund, not one managed to be benchmarking the US or bond markets regularly and convincingly, over the last five years, these results are even worse than those of 2014, 2015 when I last examined this subject closely."

So yeah, I mean, no surprise here. We believe markets are efficient and the concept of efficient markets is that they reflect very quickly all the information that we have in their pricing. So especially in this space where, when you think about every US company, especially every company, let's say S&P 500, large cap US companies, they're all covered by several analysts that are looking at every single thing. And so it's hard to find inefficiencies in the US market. It's different if you think about emerging markets, you're talking about thousands of companies a little bit more obscure. There's sometimes a better case for active management there, at least historically has been, but data becomes more available. I'm not really surprised by this data, but it puts it back at the forefront, that lots of active managers out there talk about outperforming, but being able to do it consistently is a really difficult thing.

Kurtis:

And I want to make sure that people understand that active management is different than professional management.

John:

Yeah, or active implementation of passive management. And I think that's a key thing here to distinguish. Absolutely. Yeah. So fund investments pieces, we get closer here to the end of the year, the other fun part about actively managed mutual funds is something we call capital gains distributions. And so if you have actively managed mutual funds, you might be getting tax surprises this year, even though most asset classes lost money. That always is fun, a fun impact on your tax return. And bottom line. Kurtis, you got another article here about the return to work, folks going back to the office, and it's kind of sad, kind of disappointing with some data here. And this is out of Australia, I think, where we saw some of this.

Kurtis:

This specifically focused on one of the big four accounting firms, EY, Ernst & Young, how they've seen... And if you read the article itself, it's a little bit grandiose in their claim that how much this has grown. It's true. There is a rise. It's more than what it used to be. But yeah, it's a bummer. I mean we talk about-

John:

What we're talking about here is bad behavior in the workplace. So complaints about bullying, harassment, those sorts of things. Sorry, this isn't the almost cheerful topic this holiday season, but very real, and some of which kind of dissipated when everybody was working from home and there weren't the happy hours, there weren't the holiday parties, those sort of thing, now it sounds like it's back.

Kurtis:

And it's just disappointing that we can't be better to each other, especially professionally at work. It's like, you have a job to do. I don't understand. Power corrupts kind of thing is usually what's happening here. One thing, a quote from the article, it says that EY and PWC alums explain the big four pressure cooker. "You survive or leave," he told the news.com.au, and the base of anonymity, each level punishes the next level down. They see it as, "If I had to do it, then you have to do it," and it propagates the same kind of bad behavior, which-

John:

This is the notion of kicking the dog. You know what I mean? So your boss yells at you, you yell at your spouse, your spouse yells at your kid, and then your kid kicks the dog and the dog can't do anything. It's messed up that we continue to see this. Big four accounting, big accounting, a lot of folks, we're having a hard enough time keeping people in the tax space. We see this, we try to hire tax managers. There's not the allure. A lot of people have left it in recent years. Later on the fact with big four accounting, you're working crazy hours, you're working for very difficult clients. You're typically overloaded to the begin with. And then you take these bad parts of the work environment and bad actors and bullies and people who bring people down and you layer that on top of it. No wonder people are trying to get out this. I don't blame them.

Kurtis:

I don't either.

John:

Yeah. Thankfully, I mean, I also think that we took away the environment with COVID and now the environment's back and folks can do this. Speaking of an environment, another environment that I don't like being part of, it's the metaverse. I've avoided the metaverse, I've never been in the metaverse, and apparently it might be a good thing, although Meta is probably not happy about it. They've spent 36 billion dollars building the metaverse, but have little to show for it, and they're not making money. Which is funny because Shane and I were talking about Amazon Alexa last week and how that loses a ton of money, but it sounds like the metaverse is even worse. No rhyme intended. Kurtis, tell me about this.

Kurtis:

So I think that it's exploratory. In the article, it says that it's 36 billion over the last three years. So it's really only 12 billion annually.

John:

Just a mere 12 billion dollars.

Kurtis:

A mere 12 billion. And even with the market as it is and Meta losing a ton of value, it's still a small portion of A, their value, and it's like 10% of their revenue each year. So it's a little expensive to be doing something exploratory, but my hot take is, at the end of the day, it may be worth it because if that's the big new hot thing, virtual reality is still around and there are advances continuing in it and I don't think Meta is going to crack the nut, but I think someone has to put money into it.

John:

So tell me, I'm curious here, you're a robotics guy. You coach a robotics team that did quite well last year, by the way, that season's coming up here in the spring again. So you're into tech. Have you spent time, I know robotics and the metaverse are two totally different things, but have you spent time... I know I'm going... Dear listener's going to send me an email, "By the way, John, robots the same." I understand, but have you spent time in the metaverse? Have you ever hung out in the metaverse? I haven't. I feel like a boomer.

Kurtis:

Right, and I haven't either. And I think in the current state, it's not worth it spending time in the metaverse.

John:

Oh, is there a better metaverse that you might go live in someday?

Kurtis:

Eventually? Yes.

John:

Okay.

Kurtis:

I think so. Again, I think that this is early. Meta is early to the game and people are picking on them because they're a social media company that's pretty established and-

John:

They already have the audience.

Kurtis:

Right. Absolutely. They totally have the audience. But again, if we think about it as things are trending, a lot of their audience are our parents, because most folks our age have moved on to Twitter initially, and then left Twitter because Elon's crazy, then to Instagram and everything. So I think unfortunately, the audience they have isn't the right market fit for this product for them.

John:

Grandma is not going to spend the holidays in the metaverse.

Kurtis:

No. I'm really excited-

John:

Maybe if we can send grandma to church in the metaverse, she might like that. That might make it easier.

Kurtis:

Maybe she'd like that. Yeah, that'd be great. But yeah, recently they did a big, what to do about their metaverse, and they spent 30 minutes of this press release talking about how now you have legs in the metaverse. So I think they're nerdy people excited about nerdy things.

John:

You now have legs? I don't follow.

Kurtis:

It's a first person view, so-

John:

Oh, so if you look down, you don't see anything?

Kurtis:

You didn't see anything, yeah. But now you can see legs. I know. Yeah. It's, again, experimental. There's lots of TV shows and stuff about VR and full dive stuff and all that, but I think we're distant from that but someone has to start it or we're never going to get there.

John:

Well, so 36 billion dollars on the metaverse for legs, is what I'm hearing.

Kurtis:

For legs. Yep.

John:

Got it.

Kurtis:

I know. It's good investment.

John:

So yes, pivoting off of that, although, because you might be shopping right now for your... You might be listening to this as you're on your way to the mall, if people still go to the mall, or doing some online shopping for the love of your life perhaps, and you might be getting them an Oculus because you want them to spend the holidays in the metaverse. Or maybe it's not the love of your life and you want them to spend the holidays in the metaverse because then they won't spend it with you. Nonetheless, however you might want to approach it, the study is out, if you want to recreate the 12 days of Christmas, it's going to cost you more money this year. And so all totaled you'll spend $45,523 and 27 cents this year if you pick up each of the 12 items mentioned, but that's only one of each, and that's not how it works.

And so, if you're a stickler for detail and buy everything in the song, sat on your [inaudible 00:15:17] with 12 pear trees and more birds than many aviary, sanctuary, this is a quote, you're looking at a bill of $197,071. And you'll likely be dumped by New Year's Eve as it says. Uh-huh. Or attacked by all those geese. But even inflation has started to hit the 12 days of Christmas and buying all these gifts, and basically on par with inflation across the board it's up about 10% year over year in terms of total cost here. I just don't know what people are going to do. Maybe it's going to be four golden rings this year.

Kurtis:

Right, it might be. [inaudible 00:15:58] your comment here, John, about the eight maids a milking remains unchanged.

John:

Unchanged.

Kurtis:

Which is a hilarious comment against wage stagnation in a capitalist society.

John:

Absolutely. No, absolutely. Totally messed up that eight maids a milking is the one item on the list that has not changed in price year over year. Gold rings are up 39%, turtle doves are up 33. But the eight maids a milking remains unchanged. But hey, it is that holiday time of year, people are doing their holiday shop. I say Christmas shopping, it could be festival shopping, it could be Hanukkah shopping, could be Kwanza shopping, could be whatever holiday you choose to celebrate, or not celebrate this time of year. But overall, on a whole, we're going to get some numbers here in the next month or so, definitely a more expensive year for shopping. Have you started your holiday shopping yet Kurtis?

Kurtis:

Yeah, I've done some holiday shopping. I, of course, had to do a graduation gift as well, so I spent a lot of time focusing on that beforehand. But we're a board game family so I've locked in some of those deals. And Christina also got a 3D printer as a gift, so have to see if there's any bells and whistles to add to that for Christmas.

John:

That's a nice gift there, a 3D printer, because then that's the gift that keeps on giving. Because you get the 3D printer and then you can just, well, what did you want? Just print it out. Right?

Kurtis:

Just give me 12 hours, I'll have it for you.

John:

Give me 12 hours. I'll make you whatever you want. I think there was an article we did about a year ago in the podcast here, you could 3D print a house, basically.

Kurtis:

Yeah, with concrete. Yeah. It was [inaudible 00:17:37].

John:

Yeah, pretty fascinating stuff. But definitely seeing an increase in cost this holiday season, inflation hitting many of those things that we're buying. The other thing that I'm kind of hung up on is I haven't really started much of my holiday shopping yet and the reason why is because it's only... We're recording this on the seventh, it's airing on the ninth, but I've got two and a half more weeks and Amazon will have stuff here in two days. Why do I need to plan too far ahead? Oh, I don't know. I haven't been digging it too seriously. That's going to bite me, by the way.

Kurtis:

Sure.

John:

And so be sure to listen in to my regret in a few weeks if I'm co-hosting again. That's going to come back and bite me in the ass. But yeah, I don't know. I feel like it used to be Black Friday. The one thing they finally killed this year, or in the last couple years, is not opening up the stores on Thanksgiving anymore. I think that was one thing that COVID took away and is really gone and I was relieved to see it because [inaudible 00:18:38] to those retail workers. They're pulled away from their family so much. I can go to a department store or to Walmart and trample somebody for a television if you [inaudible 00:18:45], seems kind of silly.

Kurtis:

For sure. Speaking of Black Friday and procrastinating on your shopping, that's the next article we're going to talk about. Of course, it's a hot listical, eight things most Americans don't know about holiday spending.

John:

What don't I know, Kurtis? Tell me something I don't know about holiday spending.

Kurtis:

Holiday shopping is falling prey to the classic problem of Christmas, like decorations showing up in stores November 1st.

John:

Right after Halloween, literally. I went to the grocery store to buy discount Halloween candy on November 1st that was on sale. I was just trying to do my part, clean off those shelves, inflation, whatever. And it was all the Christmas stuff already. All the Christmas chocolates. And so it's just starting earlier and earlier. Is that what we're saying here?

Kurtis:

Yeah, apparently there's some, I know that stores who do the Black Friday month now, where it's in the entire month of November, I think Cyber Monday is a week now, that still starts on Monday, but goes for that whole first week there. So yeah, it's just the deals are longer and then it becomes less of a deal. I don't know. The FOMO is being spread out.

John:

What I'm curious is, we're in this weird economic time where unemployment's still very low, the labor market's still very tight, but inflation is coming down, but it's been pretty high. And so it's just the cost of the holidays is higher than it's been. And I'm curious about buy now, pay later. It's just become such a popular thing. I've read some articles saying buy now, pay later is going to increase this year. A lot of people are charging Christmas, they're going to buy the gifts they're going to buy, and they're going to find a way to pay for it later on. But very interesting where holiday spending comes in, because overall, just because inflation should be higher than it was last year. But yeah, I just think that we've glamorized and made it very easy to buy now, pay later through the affirms of the world, through some of the other tools out there, to make monthly payments too and not tie it to a credit card and significant credit card debt.

Kurtis:

Exactly.

John:

But yeah, it's been fascinating to see that phenomenon basically become incredibly more popular in this year where I think some people are struggling this holiday season and have burnt through a lot of their savings, buy now, pay later becoming a bigger thing.

Kurtis:

Absolutely. No, I definitely agree with that. And it's easier to say, oh, I can buy all these gifts because I'm only paying 50 bucks a month for the next 12 months kind of thing. But it's still, you pay interest on that and it's more expensive than having either saved or saying, you know what? I unfortunately can't afford such an extravagant gift, we'll pass on it right now. But the deals honestly aren't good enough to merit going into debt everyone, sorry to say. Hot take there.

John:

But what about a deal? So what if the deal I offered you, Kurtis though, was if you opened up an IRA account, I was going to give you a 1% match on your IRA contribution, and you had to keep that money in your IRA account with John Owens Incorporated for the next five years, or you had to pay back that 1%? Because that is what Robinhood just announced. Pretty interesting move here by Robinhood. They went public last year, their stock has struggled, and now they're trying to gather more assets, it sounds like.

Kurtis:

Yeah. I think they're in panic mode a little bit.

John:

Okay.

Kurtis:

If you look at from IPO, they're down about 70% stock value. This year to date, they're down about 40. And in the end of September, apparently they have more cash on hand than what the market believes they're worth, for their market cap, which is a little unfortunate.

John:

[inaudible 00:22:56] efficiency in markets. That's a bit tricky. I don't know much about the debt they have on their balance sheet, but yeah. And so basically they're saying that if you work in the [inaudible 00:23:09] economy in particular, and you don't have access to a 401k, you can open up an IRA with us and we'll provide you with the match with the caveat that you got to keep that account at Robinhood for the next five years.

Kurtis:

Exactly. Yeah. And that's kind of egregious. I mean, even the most stringent of vesting schedules for matches at a company cap out at four years.

John:

Yeah, it's a three or four year cliff, or gradual vesting over time where you vest at. But Robinhood, so I'm guessing that what they're trying to solve here, this is my theory, and I'll be honest with you, Kurtis, I didn't read the article, so I'm trusting you here, but my theory is, I'm filling in for Shane obviously, I didn't actually read it, but here we're, or AJ it could be. So they're trying to get more longevity in their client relationships, that people use Robinhood as maybe their training wheels for investing, and they haven't done it before so it's easy to open up a Robinhood account, they've gamified it. And then either they get sick of it, or they lose a bunch of money and they close it. Or they become more sophisticated and they say, "Actually, Robinhood is not where I want to have this," and they move to some other broker, maybe it's [inaudible 00:24:27], maybe it's somewhere else. And so are they trying to fix that and just have more client accounts and make them be stickier?

Kurtis:

I think they're trying to be stickier. I know that Robinhood benefits a lot. It's free to trade and stuff like that. They benefit a lot from payment for order flow, which is this idea and ability, basically, they can sell your data to other hedge funds and other companies out there to allow them to see what the trends are in trading, which is kind of sketchy in and of itself.

John:

And if you think about it, Robinhood [inaudible 00:25:10] shortly after the peak of meme stock mania. So Robinhood [inaudible 00:25:13], I want to say it was like Q2 of last year, we had meme stock, don't quote me on that, but somewhere around there. We had meme stock mania going crazy in January of 2021, February 2021, that was when GameStop, AMC, those sorts of things. Robinhood made a bunch of money, they were like, "Hey, this market is hot. [inaudible 00:25:36] are going nuts. And we're going to go public. We're going to cash out." And really, the market's in a very different place than it was then. We haven't seen nearly as much meme stock movement. People have less discretionary cash flow to mess around with. At that time, you might have been some 18-year-old who just got a stimmy check through in your new Robinhood account and then bought a bunch of GameStop and made a bunch of money. Now it's looking very different. Robinhood also has been very active in the crypto space and trying to be a little bit more of being a custodian in that spot, been obviously a very tough year there. We've not talked about Elon Musk or FTX today here on the podcast. Was that intentional? Perhaps.

Kurtis:

You're welcome everyone.

John:

Yeah. But yeah, no said speeding a dead horse to water, as AJ would say. But yeah, I mean, I just think this kind of... I don't know if Robinhood's the place you want to put your IRA account and be locked up there for five years over 60 bucks. Right?

Kurtis:

Fidelity was running a deal that if you deposit 150 bucks, they'll give you 50 in a taxable account, which that's a better return than 60 over 6,000. But continue.

John:

Let's talk about one other thing here that's kind of underlying. I feel like most of the people that have Robinhood accounts are taxable accounts, where gains and losses, and this is where a lot of people got surprised earlier this year and they got big capital gains bills because they were trading GameStock and swinging back and forth in terms of these stock prices. But if you think about Robinhood, that's what I tend to think of more often, and maybe they're trying to get clientele to have a stickier account in terms of an IRA and an account where, guess what? Where there are gains and losses in there if you're actively trading a lot in your IRA, which I'm not saying I recommend this at all. None of this is investment advice. You're not going to have gains and losses that show up on your tax return because it's a tax deferred account. So maybe that's the play that Robinhood is trying to make here, going after retirement dollars. Anything else here for the good of the order, Kurtis, here, as we wrap things up on this pre-holiday edition? Are you going to go out and start buying the 12 days of Christmas gifts, or is that just slightly out of the budget you set?

Kurtis:

Slightly out of the budget I set. Our big thing this year, we did a beer, like a German beer, advent calendar.

John:

Love a good advent calendar by the way.

Kurtis:

24 days of Beer-mas. It's been delicious so far.

John:

It's been delicious. Kurtis is like, "I had three of them before we hopped on the podcast here."

Kurtis:

It's not even noon in California.

John:

Oh, that's true. It's later in the day for me here on the East Coast. Well, Kurtis, this has been a pleasure. Appreciate you pinch hitting, AJ and Shane both off this week so you were stuck with the two of us. Thank you for indulging us, for talking about some of this fun stuff as we are in the holiday countdown. [inaudible 00:28:35] out the clock here on 2022. Kurtis, my pleasure.

Kurtis:

Thank you, John. I appreciate it.

John:

All right, so this has been episode 71 of the Liquidity Event. Email us at liquidityevent@brooklynfi.com. You can leave us a voicemail and we'll play it on the air. You could find our show notes from today's show at wwwbrooklynfi.com/episode71. Brooklyn FI stans can leave us a review if they want to be weird about it. I'm John Owens. He's Kurtis [inaudible 00:29:03]. Thank you for joining the Liquidity Event.

Speaker:

Thanks for listening to the Liquidity Event, hosted by AJ and Shane of Brooklyn FI. Head on over to brooklynfi.com where you can subscribe to the podcast or YouTube channel, or if you want to learn about their full service financial planning, tax and investment firm, specializing in tech professionals and creatives on the path to financial independence. We'll see you next time on the Liquidity Event.