Morgen Rochard of Origin WA joins the show to chat about the world of financial planning and more:
- Bitcoin allocation percentages
- Monetary uncertainty
- “Making your money work for you”
- Why you want to live in a Bitcoin world
- Negative real yield
- Living within your means
- Origin Wealth Advisors: Originwa.com
- Twitter: @MorgenRochard
- Book: Personal Finance QuickStart Guide
- Bitcoin for Advisors podcast
- Swan Bitcoin
- Unchained Capital (code LIVERA)
- CoinKite.com(code LIVERA)
Stephan Livera links:
- Follow me on Twitter @stephanlivera
- Subscribe to the podcast
- Patreon @stephanlivera
Morgen, welcome to the show.
Morgen Rochard – 00:02:40:
Thanks for having me on.
Stephan Livera – 00:02:42:
Yeah, I’m a fan. I love your work and love the work your husband’s doing. I wanted to get you on and let’s chat about a bunch of things about what you’re doing, how the whole world of financial advice and planning and how it relates to bitcoin. So, yeah, I guess for people who don’t know you, can you just give us a brief background on yourself and what you’re doing these days?
Morgen Rochard – 00:03:03:
Yeah, definitely. So I am a financial planner. I’ve had my practice now for about eight years in the US. They’re called registered investment advisors. So we’re independent from the large broker dealers, the Merrill Lynches, the Goldman Sachs of the world. And basically I started my career as a trader, actually trading equity options, and then went from very fast money to very slow money to very, very, very slow money, as I like to put it, because I’ve just found a lot of meaning and purpose in my work and being able to help others achieve financial freedom and independence. I also have a book. My book is the Personal Finance Quick Start Guide. It’s an overview, basically of personal finance. It should help somebody get started if they can’t work with me. And then I’ve just been trying to get as much involved as possible in the bitcoin world. We mostly have bitcoiners now coming through the practice, my husband and I do run a podcast called Bitcoin for Advisors, where we try to give as much really relevant and important information about bitcoin, what it is, how people can use it and so forth. It’s really there to be an educational resource rather than it just being sort of, I don’t know, additive podcast. So we have that as well. And yeah, that’s basically what I’m working on now. I mean, I’m working at this point to make sure that bitcoiners actually get the information that they need regarding how they can better their finances.
Stephan Livera – 00:04:31:
Fantastic. And so I’m sure you probably get asked this question all the time, and this is like one of those things that people talk about is this question of how much should people be allocated to bitcoin? And as I understand, obviously you understand this material a lot more deeply than I do. But the way I’ve heard it explained is things like, as an example, if you’re younger, you can afford to take more risk. If you’re older, you need to be more, let’s say, cautious. And there’s also this concept of, let’s say, matching what you have with what your future expected expenses are. So I guess if you had to give somebody a framework, what are some of the key ideas they should think about when it comes to that question about allocation percentage, as I’m sure people want to hear people say 100% allocation, but maybe that’s not suitable for everybody, is it?
Morgen Rochard – 00:05:18:
Yeah. So in our practice we have anywhere between zero to 100% in bitcoin. So I think that my practice sort of sets itself apart as being very different than the average financial planning firm in that regard. But no, we don’t typically tell people to allocate 100% unless it really is right for their situation, right. And in which case you say, okay, that’s totally fine. There’s this old rule of thumb in finance that you subtract your age from 100, and whatever you get is basically what you should put into equities. So if you’re 20 years old, you subtract 20 from 100 and you would be 80% in equities. There’s a lot of flaws in that, obviously, right, because a 20 year old probably shouldn’t even be 20% in bonds, especially in the current environment. And also it doesn’t take into account something like bitcoin, right. But you can sort of see, though, why that rule of thumb came to be, because as you tend to get older, right, your expenses change, your time horizon changes and so forth. I think that your time horizon is actually the most important thing when it comes to allocating. So a long time horizon enables you to hold something like bitcoin because, right, if you were to, let’s say you wanted to buy a house in one year and you had a very short time horizon, one year is very short in the financial world, even if it’s very long and for other people. So if you bought bitcoin, let’s say today, and then bitcoin went down to 10000, and I know everyone is probably nay saying now that I’m saying that, but it’s possible, right, that could happen then now you have less to go buy your home. So it’s not a good vehicle, right, for saving for something that’s short term. It’s a very good vehicle, though, for let’s say you’re 20 years old and you want to retire in 30, 40 years. And that would be a great vehicle because you have a very long time horizon. Or you want to leave multi generational wealth in your 20 year old, right? Like now we’re talking about generations upon generations of holding a risk asset. So what we like to do in our practice is something called asset liability matching. And basically what that means is that you match your asset, what you’re going to invest in with your future liability of what you’re going to be spending it on, and how long and how far out that expense is going to take place.
Stephan Livera – 00:07:25:
I see. So I think another concept that’s related to all of this is how we express uncertainty, right? Because when you talk to a typical no coiner or precoiner, they might be thinking of it like, oh, I want to keep that USD in the bank account, or the USD physical cash under the mattress proverbially, because that’s what they feel, quote unquote, safer with. I’m curious your thoughts on that idea around uncertainty versus, in the bitcoin context, what uncertainty means.
Morgen Rochard – 00:07:56:
Yeah, sure. So I like to think of it all as trade offs. So in the current environment, one dollar is $1 at any given time. But we don’t really think about the fact that our dollar has lost purchasing power. If you think about the last decade and what’s happened to your dollar, what you were doing ten years ago, versus what you’re doing now, first of all, it’s really hard to even look back ten years on what you’re able to spend money on. But if you really think about it so, like, when I think about my career, I’ve been in finance now for 15 years, I’ve been working now for about 15 years. About ten years ago, I could afford a lot less than I can today. But that’s a function of the fact that I made a lot less, right, as a young person coming out of school and so forth and tried to work my way up in finance. But things actually also cost less. Like I was still able to afford a nice suit, which I had to wear when I used to go to offices and things like that. So there’s a difference now between your purchasing power of today and your purchasing power of ten years ago. But because it’s not front and center in our minds, it’s not like when you log into your bank account, you can see, oh, I have 75% less purchasing power than I had ten years ago, right? You don’t see stuff like that. And also because your inflation rate is such a personal thing, it kind of depends what you’re spending money on as well. So if you happen to spend money on, like, Bitcoin and happen to really like eating meat and meat prices have increased substantially over the last ten years relative to maybe some of the other foods out there. So your personal inflation rate is going to look very different than, let’s say, somebody who’s eating beans all the time, right? So from that regard, like, it’s very difficult for them to put for, like this dollar to even mean anything. When you’re, let’s say, logging into your bank account and trying to determine how much your dollar can buy. If your dollar, for whatever reason, when you put it into a bank account, actually gave you what your personal inflation rate was, I think people will be very quick to say, oh, maybe I don’t want to save in dollars. But because that’s not the way that it works and because it’s sort of this slow creep that happens over time, we can see a difference between what we spent ten years ago and what we are spending today. But we can’t really see that much of a difference between maybe last year or the year before that. So it takes a while for this to sort of creep in. Whereas when you see the volatility of Bitcoin, right, it’s immediate, right? You log into your account, which hopefully you’re not holding your keys on exchanges, but let’s say you did, you would be able to immediately see, hey, I spent $10,000 and now I only have $7,000. Right. So it’s very different, especially if you’re pricing things in dollars. The other thing to consider, though, is that there’s a tradeoff here, right. The biggest tradeoff is that you’re trading monetary uncertainty at monetary policy, uncertainty in the dollar fiat world for what I like to call monetary policy certainty in the Bitcoin world. So the trade off there is that it’s a growth currency now and there’s volatility there. But you know what the monetary policy is going to be. You know, you’re not going to be diluted out. So if you have a long time horizon, then that’s a risk that you are able to take. Whereas with the dollar, there’s really no way to know what your dollar is going to be worth in the future.
Stephan Livera – 00:10:59:
I see. And so, yeah, I think that’s a great way to frame it. It’s around monetary certainty. And perhaps for people who are newer to Bitcoin, if you’re a new coiner, maybe you have less conviction about this thing and perhaps that happens. That’s a natural process. I’m sure you’ve seen that as well. Or even people talk about Paul Tudor Jones. He started with 1% and then later, I think a year later, he was saying, oh, go, 5%. I’m sure that’s a similar thing. Well, I’m curious. Do you see that in your clients and people you talk to?
Morgen Rochard – 00:11:28:
Yeah, so what I tend to see is either clients get into it and they are fine with their allocation, or they get into it and they want to buy more. Right. As soon as they then they start going down the rabbit hole, they start researching it, they start reading books, and the next thing you know, they’re asking to increase their allocation and increase their allocation and so forth. So generally what we have is people start with somewhere between a 1% to 10% position, depending on their time horizon, their risk tolerance, their understanding of the technology and so forth. And then from there, it usually doesn’t decrease it either is one of these things, especially in a time like now, where we are continually rebalancing into it to maintain that position or we’re actually adding to the position and so forth. But I never see people just say eh. I’m out. And that’s because I think it’s a testament to the technology itself. Right. Because every time I have conversations with clients about these things, even if they come in nervous and they are ready to sell their Bitcoin, when we actually sit down and talk about it and what it is and what it can do for their financial picture and so forth, people are very excited about that. They’re excited about the fact that they can opt out of the financial system, even if it’s in just a small way in their portfolio, that at least they have that as a backup in case all this other stuff goes down. Right. So it’s one of those things where for some people it’s just that and for other people it becomes what it is to somebody like you and me, where it becomes really like a very large part of your life. And we’ve seen that over and over again with people where orbit kind of takes over them and it becomes really definitely part of their life.
Stephan Livera – 00:13:04:
Yeah, absolutely. And the question of risk tolerance is an interesting one, too, because from what I hear and what I’ve read and even what I’ve seen when I talk to other people, it seems that it’s a common tendency for people to overstate their risk tolerance, as in they can go into a really GungHo. So somebody, maybe people who are new, maybe they can go really gung ho and then they hit their first bear cycle. And now you face that real gut check of are you willing to keep holding and keep stacking. I’m curious, has that been your experience as well in terms of when you talk to people who are coming down the rabbit hole or thinking about how much bitcoin they should hold or keep holding through a bear cycle? Cycle?
Morgen Rochard – 00:13:45:
Yeah, I mean, I think that the bear cycles do some they do damage really to people’s psyches. I have to be honest. The first one does, at least. So what I’ve noticed is that there’s really kind of no other way around that. I mean, it’s just like the first one that anyone goes through. It really messes with you because you spent time either for my clients, for instance, they spent time with me, so they spent probably a couple of hours with me. And I gave them some other resources to read, and they go off and read them on their own. So they probably maybe put 15 hours worth of bitcoin time and let’s call it at a max. And then they’re like, okay, I’m excited about it, I’m ready to do this. And they put some in and then the price drops 70% or whatever. And so then you’re kind of shaking to your core of like, hey, I heard all this information, I was really excited about this. This is something that I believe in and that I really want to have as part of my portfolio. But the market is saying otherwise. And when it’s your first bear cycle, it’s hard to understand that it’s only going to be your first bear cycle. So from there it definitely takes more. And I think that this is the process that really everybody goes through is either at that point you sell it right, or you decide to reach out to the community in some other way. For my clients, that’s reaching out to me and we have more conversations about it or finding more books or finding more resources and really trying to harden your position so you can maintain it through the first bear cycle. And what I’ve seen over and over again is that when people can do that, once they get through the first one, they can get through any of them because the first one, it just rocks you and it makes you reevaluate whether or not your research process was found.
Stephan Livera – 00:15:23:
Yeah, that’s a very fair way to put it. I find for people, it’s their first extended sort of bear cycle, right? Because they might sort of be going through that volatility, but then once you’ve actually gone down from the top, let’s say 70% or 80%, and then it stays there for a little while, that’s when you really have to actually find.
Stephan Livera – 00:15:44:
Your why, you have to find your.
Stephan Livera – 00:15:46:
Real reason why am I holding this thing? Or why am I still stacking this thing? And once you’ve come out of that, on the other side of that, then you sort of feel like, I kind of get this, this is how the cycle goes. And I think the other point I would just add is maybe there’s an irony to it that like the time that a new coiner comes in is probably the time when it’s already getting a bit frothy because that’s just what drew them in, right?
Morgen Rochard – 00:16:11:
For sure. We were at a wedding earlier this year and bitcoin obviously came up because that’s all we talked about. And this person asked us what like basically she had bought the top and she was curious how long she felt she should hold to make her money back, essentially. So this was earlier this year. So really, truly, the top was what she bought. And so my comment was at least two years. And I was thinking, I said that to be nice because really what I should have said was like four to five years. But in my head I was like, I was trying to be nice about it and I said two years? And she was like, two years? Oh my gosh, that’s a lot. I can’t possibly hold this thing for two years to make my money back. So I think that I’m bringing this story up just because I think that we get into these situations where we think that because we have to hold it to make our money back for such a long time, that it’s too painful and it’s not something that we can do and it’s just not true. I mean, you have so many other aspects of your life, hopefully, besides bitcoin that you can focus on during this time. And in the meantime, if you can automate and add to your position, like by doing dollar cost averaging and so forth at a place like Swan or you can just, even if you don’t want a dollar cost average, just hang out, right? Just hang out. Don’t look your position, move your coins off, exchange, put them in cold storage, don’t think about it, right? And then just go about your life. You’re going to be way better off. And they did a study. It was Fidelity who did a study, and I’m sure it applies to Bitcoin too, where they basically were curious of their retail account holders who did the best, who had the best returns. And what they found was that the inactive accounts and the dead account holders were the ones who did the best. And it’s sort of a testament to how our brains can just totally mess with us and make it so that we can’t hold a position even if we have conviction in it.
Stephan Livera – 00:18:05:
I think you make a really good point there. I think for a lot of people, if you’re not actively working in the space, probably the best thing you can do is obviously make sure you’ve got your cold storage set up and then just go away for a few days and come back. And then you’ll be, like, amazed at how far things have come. And now you’re probably way up compared to where you were. But the difficulty for a lot of people is actually achieving that. Right? I think for some people it’s a lot of impatience. And this is something I have seen as well. Even when I’m coaching somebody and I’m trying to teach them, I’ll give them, okay, think about it like it’s a long term thing. This is your long term savings. Like, ideally ten years plus and hold your own keys and all this stuff. And they’ll say, okay, Stephan, yeah, I get that, but can I do something now? Is there anything I can get a quick win now? And it’s challenging, I’m sure like to deal with the impatience that is common today. And arguably people are in this TikTok generation or they’re scrolling on Instagram and things like this. How do you go about that when you’re trying to coach someone or give them tips on the path?
Morgen Rochard – 00:19:12:
Yeah, I really do believe that that’s when having a financial planner, or at least one who understands Bitcoin, really does help. Because whenever my clients have issues or questions about something like this, they call us before they make this decision, right? Like, without exception, they call us. They don’t just unilaterally sell their positions or do whatever it is that they want to do. Like, we made a plan for a reason. So at the very least, they’re going to honor that by having a discussion with me about why they want to change that plan. But they’re not going to just change the plan without having that conversation. So I think what most people need is just some sort of roadblock. It doesn’t necessarily have to be a financial planner who’s like, hey, don’t sell your bitcoin, you’re going to regret this in the future. Right. It’s just some sort of roadblock to keep you from making a bad decision. And if you can delay as much as you can delay that bad decision, the more you’re able to do that, the easier it is for you to continue to delay and the more successful you’re going to be. So I’d actually like to use a budgeting example for this because I think it kind of applies especially in this, like me, me. Now, now, now culture that we have. So what we tell people who have trouble spending on, let’s say, like somewhere like Amazon where you can literally buy anything at any time and have it be delivered to your door the next day, right? It’s like such an instant culture that Amazon has created around spending. And so what we generally tell people is delete the app on your phone. And so when people delete the app on their phone, what happens is that they realize they have to go to their computer to go spend money. And it’s really annoying to not be able to just take your phone out of your pocket and spend the money. You have to actually go sit at your desktop. Some people figure out, okay, well, I can go on the browser on my phone, and I can do it there, but it’s still annoying to go on the browser on your phone and do it rather than to do it in the app, right? They’ve made it really quite seamless in the app versus because they don’t want you being on the browser, they don’t want to support that. So we generally tell people to delete it because it will give them at least a roadblock there, right, so that they can’t go and spend. If that doesn’t work, what we generally tell people is not only should you delete the app, but you should also save things in your cart for later. And we tell people to do that because it’s then yet another roadblock, okay, like, fine, if you want to buy that, that’s great, but put it in your cart, save it for later, and then come back in two days. And most people, when they come back in two days, they’re like, eh, I don’t really need that, right? Because you put enough of a roadblock and a delay into it to make sure that you can mitigate that behavior. That it’s like, that now instant, I must have this thing behavior. And then when that kind of wears off in your brain, you realize, okay, I actually didn’t need that cat coaster, and I’m going to be okay without it, and I can move on with my life. And it’s kind of the same thing withholding investments, right? It’s very easy to get have our brain tell us, okay, I’m not going to have any money if I don’t sell my Bitcoin. I need to go into Fiat immediately. Like, I have to get out of my Bitcoin position or my stocks or whatever it is that you’re holding, right, and immediately convert back because I’m afraid of what’s going on in the environment. But if you’re able to delay it, right, the market generally changes over time. So the more you’re able to put those roadblocks in and delay the better off you’re going to be over time.
Stephan Livera – 00:22:20:
And as I understand, this is something I saw from some of the Boglehead forums as well, where they spoke about this concept of staying the course, right. This idea, as I’m sure you’re probably familiar with as well, where for many people, the point is staying the course actually was more successful, as you mentioned, with the customers who were inactive or sadly dead. In an ironic way, they performed the best in their investments because they simply stayed the course. And actually one of the value adds for having some kind of financial planner or adviser, a person to help you, is that they are helping you stay the course. And maybe that’s where the value comes from for that customer.
Morgen Rochard – 00:22:59:
Yeah, for sure. I guess I’m mixed on that because as a financial planner, I like to think that we have value in a lot of other ways as well. But for the average advisor, the average adviser’s job is to get you into an asset allocation, get you into that asset allocation as quickly as possible, right? Because we live in a fiat world and we need to take our money that’s rapidly losing purchasing power and put it either into some sort of spending or investment account, right, and then get you into an asset allocation and have you stay in that asset allocation as long as possible. And there’s a lot of things that are wrong with that and there’s also a lot of things that are right with that. Right. The thing that’s wrong with that is that we shouldn’t live in a world where we need to invest our money as quickly as possible and that we need somebody to be like, hey, move your money from here to here as quickly as you can, because inflation is rapidly reducing the amount of money that you’ll be able to use in the future. Right. So there’s something wrong with the system for sure, but the person helping somebody do that adds value in that way and then keeping the person on course as we go through, you know, over and over and time and time again, there’s going to be downturns and so forth that happened in the market. So that person adds value in that way. So there’s that form of financial advisor. The next step is to get somebody who’s a financial planner. So the financial planner does everything that the adviser does but they also actually do planning around other aspects of your life. So making sure that you have enough money to retire or making sure that you have enough money to if taking a trip around the world is your thing and you want to do that in ten years, right, making sure that you’ve saved and invested appropriately so that you can go and do that. How much house can I afford? Is something that comes up quite often. Enabling some sort of financial freedom. So a lot of people who come into my practice is because they’re in some transition of sorts, they don’t necessarily like the job that they’re in and they want to go somewhere else, they want to start a business, they want more flexibility and freedom with their time and their energy. So your financial planner is going to help you make those transitions and they’re going to help you get from point A basically to point B, in addition to helping you invest your money.
Stephan Livera – 00:24:56:
Back to the show in a moment. Unchained Capital is a Bitcoin native financial services company coming out of the US. Now they can help you with setting up a multi signature vault, meaning you hold two out of three keys into a vault, giving you that additional peace of mind that you have removed single points of failure. You could potentially make a mistake and not lose all your coins. So with Unchained, you can use the concierge on boarding and get set up with a multi signature vault. They’ll do a call with you and ship you the hardware if you need that. Now, Unchained Capital also offer loans for people who want to borrow against their Bitcoin and they’ve recently launched a trading desk available in over 30 US states for those of you who want to buy Bitcoin directly into your vault. So if you’re interested, go to the website it’s unchained.com. Blockstream is creating Blockstream Green. It’s an industry leading bitcoin and Liquid wallet. Gain access to powerful features such as multisignature security, full node verification and Tor support. Blockstream Green is available for iOS, Android or desktop. And with their multi seat shield feature, one key is held on your device and another is held on Blockstream’s servers, enabling you to protect your wallet with two factor authentication. They also have time locks or a third key backup to ensure you still retain full ownership of your funds. Now they also have integration with hardware wallets such as Blockstream, Jade, Ledger, or Trezor devices to get you the best of both worlds. Cold storage of your private keys combined with Blockstream Green’s suite of features and multisignature security. So Blockstream Green also gives you that choice of whether you want to use single signature or multi signature. So if you go to the website, you can download it. Now for iOS, Android or desktop that’s blockstream.com/green. Now, when it comes to Bitcoin hardware security, my favorite is the Cold Card. It’s available over at Coinkites.com. The Cold Card looks like a little calculator. You can use it to store your Bitcoin private keys and it can sign your Bitcoin transactions. And you can do this using air gap methods such as the Micro SD card. Or you can use NFC support if you’re comfortable with that. The newest version has more Ram and a faster CPU to make for faster signing of transactions, particularly if you’re doing big multi SIG transactions. This could be really handy for you. It comes with a range of different features and possibilities such as a brickme pin, a duress pin, BIP 85 seed XR, and all kinds of features. They also have other products such as. The tap signer and the Sats Card. And the block clock, which you might have seen in the background of Jack Dorsey’s Congressional appearances. And it’s also a really cool device just to keep an eye on various things in the Bitcoin ecosystem. You can get all of this over at Coinkite.com. And now back to the show with Morgen. Right? And thanks for the clarification there around the planning and advising distinction. I wasn’t as familiar with that. Also, I think there’s a common mindset that you should, quote, unquote, make your money work for you. And I think this is a very common mindset like we see this and maybe this is from people who are not as familiar with this world. Can you explain how you’re seeing that? Is that a problem or is it just that people are not thinking about it the right way? How should people think about this idea that you should make your money work for you?
Morgen Rochard – 00:28:11:
Yeah, that saying is such a fiat saying to me, it kind of makes me laugh. It’s like that one, make your money work for you, multiple streams of income. There’s a bunch of those out there where it’s the fiat world that we live in that is basically created this environment where we have to actually make our money work for us because otherwise our money literally becomes garbage, right? Like it’s not worth anything. So, yeah, I think in the current environment that we live in, for sure, we have to put our money to work, quote, unquote, which basically means find investments. And that can be anything from something like Bitcoin to stocks to something like real estate. People often like to get into I think what’s often sort of not discussed enough is the fact that generally people like to bring up real estate as the thing to do. And real estate actually is basically it’s running a business and people don’t often think about real estate as such. So people think about real estate as, oh, I’m going to go buy a property. I’ll use a little bit of leverage and I’ll have this stream of income and I won’t have to do anything. And that’s just not what occurs. Real estate is a huge business here in the US. And globally. You have basically top line revenue, right, as renters paying income. Then you have a bunch of expenses, including your mortgage and your property taxes and homeowners insurance. And just off the top of my head, your tenant is going to break stuff, right? They always do that. There’s going to be some line items there. You’re going to have to update your property every so often to make sure that it’s still relevant for renters in the market. So there’s a lot of other line items that come in there to then have a bottom line, which you then pay taxes on that bottom line. So I think that, yes, definitely put your money to work, quote, unquote, but maybe find something that you don’t have to work so hard doing.
Stephan Livera – 00:29:59:
Right. I think similar to the idea you were mentioning is this cult of passive income, right? This idea of just sit back and do nothing, when the reality is very much that in some sense it’s all active income, right. You have to spend time managing it, whether it’s a property portfolio or a stock portfolio or something else. But I think this also brings up another idea that perhaps, and this is the sad reality of the fiat world and the high level of inflation we’re living under now, that it’s very difficult to actually save your way to wealth nowadays. It’s almost very much a requirement, almost, that you have some kind of business or some kind of equity and some thing that’s going up as well because you’re not going to make it by just not spending on coffees every morning. How do you explain that to somebody? That they have to be looking at ways to earn more as opposed to just purely saving.
Morgen Rochard – 00:30:56:
Yeah, so the math on that, the way that it works out, is that if you start with zero and you are able to save 22 and a half percent of your income, you will be able to retire in 20 years, assuming that you have invested it properly.
Stephan Livera – 00:31:09:
Morgen Rochard – 00:31:09:
And you didn’t buy a bunch of NFTs that went to zero. Right. That’s part of the assumption there. But that’s very difficult for people, 22 and a half percent of your income, to put that into perspective. So let’s just make the numbers easy here. So you make $100,000, let’s say, and let’s say you live in a place where you also do have to pay state tax and you’re paying FICO and so forth, and everything else here in the US. You probably have at least a 25% to 30% tax rate right off the top. So right away you’ve gone from $100,000 to $70,000. You also need to be saving 22 and a half percent of pre tax income, not post tax income. So that’s another 22 and a half should be saving on that. So now you’re looking at, instead of I have $100,000 to spend, I actually only have $50,000 to spend. Actually a little less than that $47,500. Right. So it’s significantly less. I think what happens to people is that you see that top line number and we think we have a lot of money. And it turns out that after taxes and what really should be a healthy savings for most people, which is at least 20% of their pre tax income, there’s really not a whole lot left over. And so, yeah, I guess in that world if you want to. The way you want to make sure that you can save is that you’re not going to have a latte every single morning, okay? It’s going to save you $600 a year or something like that. I mean, we’re not talking about big numbers here, right, that are really going to move the needle. What’s going to move the needle is going to be, okay, I want to retire, or I want to have much more in savings. I really, truly want to get ahead. So now I’m moving that lever from 22 and a half percent of my income to 40% of my income and savings, right? That’s going to significantly change things. But we’re going back to that $100,000 question here. Right now, we’re talking about $40,000 in savings instead of $20,000 in savings. And you’re paying taxes, right? So now you have significantly less leftover that you’ll be able to spend. So generally, that’s why increasing income really does work. Yes, you’re going to pay more in taxes and so forth, and there’s no way around that. And there are some ways to put savings into pretax ways and so forth. But in increasing income, right, you can still maintain an okay lifestyle, right? We’re not talking about flying private jets and so forth from increasing your income. We’re just talking about, okay, I’m going to increase my income and then use that to put it towards savings, which, I mean, at the margin is actually really difficult for people to do that. But let’s say somebody actually could do that, they’re going to be much better off from doing so just because of that function of the lever of, like, how much more you can save from increasing income rather than how much less you can or how much you can actually save from just savings alone. That said, we do live in a culture where, like I said earlier, it’s now now me me, everything’s about me, everything’s about experiences and stuff and so forth. So I think we’re starting to get away from the stuff culture, but not so if you look at Amazon’s revenues and results and so forth, people are still spending like crazy. They’re just less likely to admit that they’re doing that, and they’re more likely to say publicly that they’re spending on experiences. And experiences is still a now now me me thing. And I’m not here to take away everybody’s experiences and so forth or make it such that people can’t have these things. But to put it into perspective and experience is going to cost a lot more money than, let’s say, your daily latte. And if you get a lot of pleasure out of your daily latte, maybe mitigating how many experiences you have per year or per decade is going to actually move the needle quite a bit more than you just saying, I’m going to make my coffee at home, and I’m going to suffer through it miserably. So I think that there’s a lot of levers that people can pull. Like maybe increasing some income and decreasing some expenses is generally the right way to go. That way you have a balance of both, for sure. But I think it’s really difficult in the environment that we live in because people are trying to keep up with others whether they see it or not. Right. Like one of the examples I like to use is one of my clients’ children. They were telling me that they love going to really expensive restaurants. This person is in their early twenties. Right. A person in their early 20s making $40,000 a year shouldn’t be eating at Daniel in New York City. Right. Like, that’s just not the way it’s supposed to be. And like, I’m sorry if this offends people, but like, that’s going to move the needle a lot more. Like, or make it such that you go into debt right. To have these experiences, quote, unquote, that you think that you’re supposed to have because you work really hard and you’re entitled to it. I think that people get into these traps of I worked so hard, I deserve it, and they don’t think about the repercussions on the other side of what that could mean.
Stephan Livera – 00:35:51:
Yeah, a lot of excellent points there. I think people have grown accustomed to using cheap debt to fund a lifestyle that is perhaps above their means. And what we are perhaps now seeing is the cost of debt is rising a lot, where in, let’s say, some of the recent years, it looks like debt was just so cheap and oh wow, what a bargain. You would feel like a fool for not using that cheap debt. And people could argue about what’s like a productive use of that debt if you’re using it to try to earn more money with a business or things like this. But I think the market collectively is going to experience some more pain now that it seems that interest costs are rising back up again.
Morgen Rochard – 00:36:37:
Yeah, definitely. I mean, the housing market, for instance, is like just the first one. Obviously it’s going to be affected by this. So if basically I think I saw that the 30 year mortgage ticked over 7% recently, I think it was last week. And the difference is basically that if you had bought a home two years ago, the same home, same price even, because prices haven’t actually come down to reflect what’s going on in the interest rate market for the most part. Yet you’re basically spending twice as much now with a 30 year fixed as you were two years ago if you bought the same place for the same price. So in some ways it kind of makes sense the craziness that was going on in the housing market while interest rates were low.
Stephan Livera – 00:37:21:
Morgen Rochard – 00:37:21:
Because people bidding up and waving inspections and taking homes without even seeing them. It seems insane and crazy. But if you think about how they waited and they had been a little bit more careful about how they were purchasing home, their interest rate would be more than double what it was two years ago. And that’s just one aspect of people’s financial plan. It also tends to be the part of people’s financial plan that can really tank them. We like to keep for our clients, we generally like to keep people’s housing expenses less than 20% of pre tax income. And that’s everything that’s your mortgage, both your principal and interest of your mortgage, your property taxes, your homeowners insurance, any HOA fees that you may have, your utilities are included in that. And maintenance, which people don’t include because maintenance is not actually a cost that you see. But maintenance of people’s homes is generally somewhere between 1% and 3% of the purchase price is what we’ve seen for the most part. And an older home is going to be closer to 3% and a newer home is still going to be closer to 1%. Even on these new construction homes, people are still finding 1% in maintenance that they need to do on their homes. So this is a very significant category of people’s budgets. So if expense, like if basically that expense by the function of interest rates has now doubled that category right. It’s going to become very unaffordable for people. Or what they’re going to do is they’re going to stretch their budgets even more to buy that home that they think that they’re supposed to have and it’s going to be very much less leftover for savings and possibly put people into more debt.
Stephan Livera – 00:38:52:
I see. Yeah. And so a lot of it just comes down to, at a fundamental level, people just living above their means and not being conservative enough, I think, with their living expenses or even with the homes they buy, the cars they buy and things like this. I know another common trap that I’ve heard of is people are doing things based on what’s the monthly payment going to be and can I afford this monthly payment? And that sort of ends up being kind of a scam or kind of a trick or a slight manipulation by, let’s say, the car dealers or the people selling houses is because they sell it to people based on, look, it’s within your monthly minimum payment. But they don’t understand that the cost is being built into that interest rate. That they are paying. And so really the question people should be asking is what interest rate am I paying on this debt? Right.
Morgen Rochard – 00:39:40:
Yeah, for sure. And looking at the total picture, too, because, like, the payment is not the only thing that you spend. Maybe for some people with their cars, it might be the only thing that they spend for quite a while until the car payment rolls off and then the car starts to have problems, and then they start needing to pay for the car to have maintenance. But for the most part, people can get through the first five ish years with a new car and not have to pay any additional maintenance cost with a home. That’s just not the case with the home right away.
Stephan Livera – 00:40:09:
Morgen Rochard – 00:40:09:
If you have a yard, you’re either the one out there picking the weeds, right? And so you’re spending your Saturday and Sunday doing that or you’re hiring a gardener at the very least. Right. So that’s just like one basic expense that people have. Most people, they don’t want to be cleaning their homes, you know, every single day, most people have somebody come in, let’s say even once a month or a few times a year to come and clean their home and do like a really nice deep clean. Right? So even on a new home, you’re going to have that because you live in your home. I think that it’s kind of incredible to me that we live in a society where the government thinks that people actually need incentives to spend their money. It kind of goes back to the money being broken here. Because the whole reason why we live in an inflationary environment is because the government wants you to go out and spend your money, and they want you to do it to stimulate the economy. And they don’t want you to have incentives to save as much as you should be spending. And yet people find so many amazing ways to spend their money.
Stephan Livera – 00:41:01:
Morgen Rochard – 00:41:01:
Like there’s really there’s kind of no and there’s no limit, especially on like, people’s homes. Right? There’s so many things like I need to renovate my bathroom and I need a new kitchen and I need to do this. And I know that the list never ends. And if you’re not spending money on that, you’re finding something else to spend your money on. Because when you’re not working, most people are spending their time figuring out how to spend their money. And that’s just basically the environment that we live in. And so if the incentives would be aligned back to people actually like being forced to save rather than being forced to spend all the time, I think that people would still spend their money. Right. Because psychologically we want more, we think we need more. And we are constantly in a situation where we’re being presented with amazing opportunities to go and buy something and we have to say no to those opportunities. And it’s a lot easier to say no, obviously, when your money is increasing in purchasing power than when your money is decreasing in purchasing power. But for most people, they’re still going to say yes. Right. And so the incentives that the government has created for us to spend our money, they don’t need to be there for people to spend. I guess that’s what I’m saying here.
Stephan Livera – 00:42:08:
Yeah, of course. And fundamentally there’s just this in a way, you’re fighting this uphill battle because you’re having to tell a lot of people, hey, you need to learn to live with less. You just have to just learn to make certain tradeoffs and find ways to either get more for less or just spend less. Like fundamentally look at the big wins that you can have in terms of your budget where you can look to save a lot of money, whether it’s on your house or your housing, wherever you’re living or your car or public transport, if that’s a possibility. Doing things like buying a used car or not buying a fancy pants car, just getting sort of a solid car. The other point as well is that it’s easy to get attention by sort of posting about the big Glam thing, but in practice, that’s not actually what’s financially sound for most people.
Morgen Rochard – 00:43:00:
Yeah, for sure. I think that it’s hard when we do live in like an Instagram TikTok environment when you’re seeing what other people are doing and those experiences and those large fixed expenses that other people have seemed very exciting and they could really, truly derail a financial plan. One of the things that I always like to come back to with my clients and really with myself is we have everything we need. We truly have everything we need if we really look around our homes and the environment that we live in. Yes, there’s going to be things that we want that are missing in our lives, but for the most part, we do have everything that we need. And coming back to that really can ground people in appreciating what they have around them rather than constantly wanting new. New and more and more. One of the examples I like to use, especially for women, is like, how much clothing you have in your closet for a lot of women.
Stephan Livera – 00:43:55:
Morgen Rochard – 00:43:55:
It always seems like I don’t have anything to wear. I need to figure out something out. Like, I need to go buy something new because all the stuff in my closet is old. And for most people, one of the things I like to bring up is when you do laundry, do you still have clothing left in your closet? And most people say yes.
Stephan Livera – 00:44:11:
Morgen Rochard – 00:44:11:
Because most people don’t actually wear everything they have in their closet, right. Every single two weeks or whatever it is that they do laundry and then they do laundry and they literally replenish everything else in their closet. Or like they have, you know, two t-shirts left over in a pair of underwear.
Stephan Livera – 00:44:23:
Morgen Rochard – 00:44:23:
Most people don’t live like that. And so it helps to come back to, like, I do have everything that I need, I just don’t have everything that I want. And that’s okay. It’s okay to not have everything that we want at any given period of time. We’re not like petulant toddlers that can’t control our emotions and are screaming for candy in a store. It may feel like that sometimes but we’re adults, right? We should be able to come back to what’s important, decide whether or not that thing we want is actually something that we really either can afford or should have for whatever reason or is just something that we want and we might never have it and that’s okay.
Stephan Livera – 00:44:59:
Yeah. So on the other aspect of it, I’m also curious to get your thoughts on the negative real yielding debt. That the world is sort of in this weird position where things might look okay from a nominal perspective, meaning the number looks like it’s above zero. But once we consider the real number as in adjusting for inflation, people are actually going backwards in terms of purchasing power. How do you communicate that for people that maybe they are not as financially savvy and they’re not as familiar with this idea of looking at things in real terms?
Morgen Rochard – 00:45:38:
Yeah that’s actually one of the most difficult conversations to have because looking at things in nominal terms is very easy and very deceptive and really, truly what our brains want to do.
Stephan Livera – 00:45:50:
Morgen Rochard – 00:45:50:
We want to say, oh, I bonds for instance, which are like kind of the rage right now because they’re yielding up around 10%. They’re like, oh I bonds, they’re yielding 10%. What a great investment. I’ll just give the government my money. They’ll lock it up for a year and truly, actually they lock it up for five years because if you withdraw at any given time they take away three months worth of interest. So it actually knocks down the interest rate. But that’s side note but yeah, but people see that 10% number and they think what a great idea. And what they’re not thinking is why are the government, why is the government issuing bonds at these I bonds? Is it because inflation is actually higher than they’re saying? Right? Is it actually because like CPI is taking quote unquote 8.3% or whatever it is, but inflation actually is higher and therefore in order for some people to make actually a 0% return they need to invest in IBM’s. Right. It’s a very different conversation to talk about that than it is to talk about, you know, oh, how exciting is 10% yield? Yeah, 10% yield is really exciting when inflation is 2%. I totally agree. 10% yield is not as exciting when inflation is 10% for sure. Because you’re basically what you’re saying is, okay, I’m going to put my money here and it’s just going to maintain. But because we haven’t seen interest rates like 10% in such a long time, it’s very exciting for people to see these things. So I think actually the government has that on their side of like as interest rates are going up people are going to get more excited about what they can get, their 2% interest rate that they can get on their high yield savings account even though really, truly they’re losing 6% by putting their money there. The other fact is that it actually makes people, it forces people to invest beyond their risk tolerance. And time and time again we’ve seen this with an inflationary currency is basically that people actually want to live in something like a bitcoin world. They just don’t know it. And the reason why they don’t know it is because they think bitcoin is so volatile. Oh, I can’t possibly hold bitcoin. What would it be like to live in a monetary world where the, you know, where bitcoin was super volatile? That’s so scary to me. But what they really, truly want, and for a lot of people, what they want is they want want to go out, make some money, take it home, put some of it in their mattress and spend the rest and not worry about the amount of money that they put in their mattress. Right? That’s where the mattress money thing even came from, is that people were doing that and that used to be an okay thing when your currency wasn’t being printed away into obliterate. So I think it comes back to the fact that because people actually want this deflationary currency, but they don’t know that they want it, but they also don’t want to take the risk associated with buying something like that or even buying something like stocks. What happens is that because we live in this fiat inflationary world, people are forced to invest beyond their risk tolerance. And so, I mean, I’m seeing it even in my own practice where people probably would prefer to have bonds, but we’re in an environment where I don’t know where these are going. It’s very scary to me to have people hold lots of long duration bonds in their portfolio. We don’t advocate for that at all. And in fact, generally, when people are holding bonds, we’re holding bonds because we’re going to go buy something short term and anything else that’s long term money is invested in something like stocks and bitcoin. And then it’s having those conversations around why you’re invested a little bit beyond your risk tolerance. And that’s because of the time horizon effect.
Stephan Livera – 00:49:00:
Yeah, I think you make a lot of sense there because fundamentally it’s not that clear what happens with bonds. Right. Do bondholders eventually get wrecked? Because the US government and many governments around the world have very, very high debt levels and it’s not clear that it will be repaid the honest way. It may well be repaid the dishonest way by printing a lot of it such that the amount you get paid back in is worth a lot less in purchasing power terms in what you can buy and eat is going to be a lot less than what you get paid back. So all these people who are buying ten year bonds or even longer duration bonds could be in a lot of trouble.
Morgen Rochard – 00:49:36:
Definitely. There’s a very dark example of this that. Maybe your listeners already know of, but I’ll bring it up anyways. So during World War II, or when World War II first started, the Japanese decided they were going to issue insurance policies on any of their citizens that were willing to buy it, basically. And it was a way for the government to raise money. So basically what they did is they issued these denominations of different types of insurance policies and then people would basically they would take their hard earned cash and they would give it over to the government. And then the government immediately used that to basically fight against the war machine. And we obviously know that they lost the war and in fact, many, many Japanese passed away during World War II and obviously the government was not able to make good on those promises. And so when I think I mean, I know it’s kind of a very dark example to use and hopefully the US. Doesn’t enter into nuclear war and so forth, but like, is the US. Actually going to be able to repay these debts? And the answer is really no, right? The answer is that they are going to unfortunately have to do it the hard way, where they basically inflate people out of their money in order to pay this back. And they thankfully now for them, they have the printing press, in which case they could do that. But at some point, right, the music will stop. It’s one of these things that I talked about a long time ago, I had a colleague, we were sitting and talking about interest rates. This is back in 14, this is a long time ago relative to now. And the discussion that we basically had around it was he said in his mind, he thought that the government can continue to print money as long as people wanted dollars. But every scenario that he came up with in his head, he couldn’t think of a scenario where people wouldn’t want dollars anymore and where they would actually want a different fiat currency over dollars. There was no scenario really that he was able to come up with. And I was already a Bitcoiner at that time, so I sort of laughed at him and he laughed at me because he thought bitcoin was really stupid. But it’s actually coming to fruition now, right. There will be a point at which people can actually opt out. We’re already at that point where Bitcoin is extremely Liquid and a place where people actually can go as a safe haven and therefore we can opt out of the system. And there will be a point at which people don’t want dollars anymore. And at that point, if they haven’t printed their way out of this right, they’re going to default.
Stephan Livera – 00:51:53:
Yeah, that’s going to be a really sad moment. So I think we kind of covered some of the, let’s say, the negative components of it. But let’s talk a little bit about some of the positives then, because the positives for the people who are saving with bitcoin. I’m curious, have you seen that either in your clients or other people, you know, who have been saving in bitcoin and perhaps they have experienced a greater sense of freedom or just psychological benefit because they’ve been saving with bitcoin?
Morgen Rochard – 00:52:23:
Yeah, there’s definitely a huge psychological benefit to it. I think that especially for my clients, most of them. So the people who are coming in now are bitcoiner. So it’s a little bit different of a mindset when you’re coming in as a bitcoin or us dealing with a bitcoin, or rather than having converted somebody who wasn’t a bitcoin or in any way into a bitcoin, or the people who were not bitcoiners and who have converted to become bitcoin. Errs, they definitely have a peace of mind about the fact that, okay, I at least have this. I have my hardware wallets. I’ve got bitcoin on it. Worst case scenario, my family and I, we grab our hardware wallet and we go. Hopefully we don’t come to that worst case scenario. But there’s a lot of psychological peace in that. And knowing that there’s a portion of your net worth that’s stored in something that’s ultra secure, that has a very stable monetary policy. And even if the price is floating around, that it doesn’t matter because you know that it can’t be seized, especially if you’re holding it properly, it’s seizure resistant, that it’s going to wear time and so forth, and that you’ll be able to take this wherever it is that you need to go. And even worst case scenario is that you can memorize your words in your head if you couldn’t even grab your hardware wallet. So I think that there’s a huge psychological benefit to holding something like bitcoin, for sure, especially in this environment. I think there’s also there is something else that happens to people psychologically as they become bitcoiners of, hey, there were always these issues in society that I knew about, but I never really traced them back to the money. And so as you’re starting to unravel the different threads of what’s going on in the current world and what you used to think, maybe what’s causing that and so forth, when you kind of implant that idea that money is sort of in everything, right. And that Fiat money really has kind of tainted a lot of different things, right? People start to see that. And they start to see that in their day to day lives. And then they start to put more and more connections together. And then they start to be more excited about holding something like Bitcoin, where it could, you know, that it’s not only like my, you know, oh, crap. In case something happens, money, but it really is more like it’s the future, right? And really creating more of a beautiful future rather than this, oh, crap, I’m going to grab my hardware wallets and run. Future so that I’ve seen with clients as well, of it being more promising, of it being more exciting, of them feeling more confident about the future that their children are going to have rather than what it used to be like before.
Stephan Livera – 00:54:51:
Yeah, that’s a really great way to put it. I think we’ve gone through a lot of material in this podcast together and so in a sense for a lot of people, it’s just getting those basics right, of really living well within your means, stacking and saving and then making sure you are self custodying, of course. But then also there’s a positive aspect to all of this, which is that we are giving ourselves additional security for the long term. So I think that’s a great message for people. And as you rightly mentioned, there are these psychological benefits to holding bitcoin and saving bitcoin, as long as we’re doing it the right way and we’re not over leveraging or overstretching ourselves, I suppose, as we finish up then. Morgen do you have any, I guess, closing thoughts, any last messages for listeners and where can they find you? Online?
Morgen Rochard – 00:55:41:
Yeah, so my last message would be that saving is good and savings should be exciting and find a way to make saving exciting in your life, especially if you’re going to do it in Bitcoin. Because I think that’s really your best hope for a really good future and really not even for yourself, right? If you don’t want to do it for yourself, find somebody that you love that you can do it for because you are going to be so much better off if you’re able to do that. So that would be my final parting words for anyone listening to this. You can find me on Twitter. I’m at Morgen with an E. Rochard my financial planning firm is Originwealthadvisors. It’s originwa.com. I also do bitcoin consulting over at moneyowners.com. I have a podcast called Bitcoin for Advisors. Pierre and I run that together. We’re hoping to put out another episode this week. People have been yelling at us that we don’t put out enough of those and we’re doing our best, so we’re going to hopefully get one of those out this week as well. I have a book called the Personal Finance Quick Start Guide and I’m also working on another book now. It’s a bitcoin personal finance book. If you would like to be interviewed for the book, please reach out to me. I’m doing interviews for that so I can have more fresh stories as I’m putting that together and making sure the content is extremely super relevant to what Bitcoin is want in that book, rather than what I think bitcoiners want in that book. Because it’s very different, I think, between what I would put in there and what other people might want in there. So please reach out if you would like to be interviewed for that and I will be at Pacific Bitcoin with Stephan in November. I’m running a personal finance workshop on the Wednesday before. I don’t know the date off top of my head, I guess it’s the 9th. I want to say it might be.
Stephan Livera – 00:57:20:
Eight or nine, something like that.
Morgen Rochard – 00:57:21:
Right, yeah, eight or nine. The day after election day. So come and check us out there. If you have a Pacific Bitcoin ticket, you can go to that workshop for free and it’s going to be all about Bitcoin personal finance.
Stephan Livera – 00:57:33:
Fantastic. Well, yeah, I really enjoyed chatting, Morgen. I’m a fan of your work and of Pierre, and I look forward to seeing you at Pacific Bitcoin. Thanks for joining me.
Morgen Rochard – 00:57:43:
Yeah, same here. Thanks for having me on.
Stephan Livera – 00:57:46: I hope you enjoyed the show and found it informative. You can get all the show notes over at stephanlivera.com/426. And you can find the things that Morgen mentioned. That’s it for me. I’ll see you in the Citadel.