#18 – Jerome Powell’s Words, Dave & Buster’s Vibes, And Window Shopping For Retirement Withdrawal Rates

Wes Moss [00:00:52]:
I was stammering around because I was going to say the great Conor Miller. And I just said it anyway.

Connor Miller [00:00:56]:
Well, it’s been a few weeks now, so it’s, you know, gotta get back. Familiar in the seed and it’s so.

Wes Moss [00:01:02]:
Good to see you. It’s so good to ride into the studio with your Tesla full of goldfish crackers, which I have been making more.

Connor Miller [00:01:09]:
Of an effort to clean it for you though, since you’ve been calling me out for the last couple months.

Wes Moss [00:01:14]:
It’s still. It’s something you can’t really do. By the way, speaking of cars, we have a giant american suv because we do have four kids. Started running a little funny the other day. I just got a call this week, so I took it in like, oh, must be the timing belt. Something must be. Yeah, it’s gotta be something easily fixed. And they even called and they said, yeah, it’s a valve and we’ll fix it.

Wes Moss [00:01:37]:
It’ll be done by Thursday. I got a call on Thursday and they said, you need a new engine. This is a car that’s four and a half years old. Oh, no, you need a new engine. A week before this, I had said, this car has really been great. It’s been really good for a long time. It was like, it was the Murphy’s law of saying that. And then boom.

Wes Moss [00:02:01]:
It’s not every day you hear that. I mean, this is. It’s not like a 40 year old car. And the service manager said, the good news is, and this is the other thing about dealerships, when something. This is not that old of a car. So luckily, all this is under warranty. They get so excited when something is under warranty and it’s a big deal. Hey, guess what? Your engine shot.

Wes Moss [00:02:24]:
Good thing is it’s covered. I don’t know. They must make an absolute fortune on those deals because they’re so excited about. You don’t have to pay for it. We got it. In fact, we’ve got one in stock. Wait, you have an engine in stock? And really, this is a huge part of the problem with inflation, Connor, is that we, our cars are getting older and older on average in America because they keep getting more expensive. People are keeping them longer.

Wes Moss [00:02:51]:
There’s the article in Wall Street Journal about it. It was about showing people with 200 and 300,000 miles on their cars. They’re excited about it. People are keeping it longer, and they’re getting them fixed. They’re paying these bigger bills because it’s so expensive now to buy a brand new car. I think the average car in America, new car is like $45,000.

Connor Miller [00:03:12]:
Well, and that’s just the start of it. I mean, the cost to repair things today is even more expensive with the technology in the cars, the insurance to cover it is more expensive. So, yeah, I understand why people are keeping their cars longer.

Wes Moss [00:03:24]:
And again, that’s one of the major things that shown up in inflation. Right. It’s been motor vehicle repair, motor vehicle insurance, and the biggest one, shelter. So that has nothing to do with cars. But two out of the three big ones that have been thorn in the side when it comes to inflation have been vehicle relatable. I don’t see that getting a whole lot better is I’ve had this all happen to me and I’ve got another old car that I’m thinking because I’ve got kids now of driving age, and I was thinking about getting rid of it, but I thought it’s a bigger deal to go buy any sort of used or new car. So I want to keep it. Wouldn’t pass inspection.

Wes Moss [00:04:09]:
And in order to pass inspection, it was like, oh, you just need a new catalytic converter. It’s not that big of a deal. Almost $5,000. I’m going to sell it. I’m going to get rid of it. And then I thought, wait a minute. I guess it’s just better to pay that and not have to go get a new car. So we’re extending because they’ve gotten so expensive now we’re pushing up the probability that we’re going to go get these bigger things fixed.

Wes Moss [00:04:34]:
And again, it’s this cycle that’s creating all this inflation. And by the way, this was not even on our list to talk about today at all. I don’t know how we got started with that. What I wanted to start with is this thought, and we’re going to talk about a brand new study that Connor Miller did this week that is such a good. Such an important item to discuss because it has to do with withdrawal rates. And we’ve talked all about the 4%. 4% plus rule. You’re probably, our audience may be sick hearing about it, but Conor took a different take on this, which is.

Wes Moss [00:05:07]:
Well, okay, what if that just doesn’t work for you? Hey, I can’t just. It doesn’t work. My Social Security plus 4% of my assets, it’s just not enough, Wes. All right, well, but 6% would, so 6% would meet the need. How do you make that happen? I’m not saying it’s the best way to do it. I’m not saying it’s the safest long term path to be able to never run out of money into the future, which is what we’re trying to avoid or achieve, is not running out. However, the book of real life just showed up and said, hey, you’re going to have to take more than the good old fashioned 4% role. How do you at least give that its best shot of working? And Connor, you did some really interesting work this week that we’ll share here today on the show.

Wes Moss [00:05:54]:
What else is interesting this week, Dave? The Fed probably quote of, I think the quote of Jerome Powell’s tenure is his quote now. And I first read it and I thought this is the best quote I’ve ever heard. Because what do we talk about last week here on money matters? Stagflation. Slower GDP growth, higher inflation than we like to see. We’ve been calling it cotton candy. Like inflation. It’s sticky, it’s sticking around. It’s usually, it’s a little warmer than we want it to be.

Wes Moss [00:06:22]:
So we’ve got a little worse on the inflation numbers, and it stalled. The trajectory of less inflation has come down. And then we get this print from. It’s the granddaddy of all economic numbers, gross domestic product, slower. What do you think? As soon as you hear slow growth, high inflation, you think stagflation. Powell’s quote this week, I don’t see the stag and I don’t see the inflation. And that’s when I read it. I was like, this is the guy’s best quote he’s ever come up with.

Wes Moss [00:06:51]:
Sounds like something we’d say here on money matters. Yeah.

Connor Miller [00:06:53]:
And really it’s something. I mean, that’s been what the Fed is trying to avoid. Right. Because we really haven’t had that since the 1970s. And that’s the one thing they don’t want a repeat of, is high inflation, slow growth, because that’s just, that’s not fun for anyone.

Wes Moss [00:07:11]:
Now, he didn’t say it the way I read it. When I saw him later that day as they replayed the clip, he said it more like this. I don’t see the stag or the flation. So next question. There was no emphasis. It was just, I don’t see the stag or the inflation. So next question, please.

Connor Miller [00:07:27]:
So you’re saying CNBC made it, emphasized it.

Wes Moss [00:07:30]:
No, just in my head. I emphasized it when he said, I layered that onto how my AI mind of what an AI Jerome Powell would say was, there’s no stag and there’s no flation. But he couldn’t have said it anymore.

Connor Miller [00:07:45]:
See, I had the same reaction you did. In my mind, it’s like there’s no stag and all caps. There’s no flation. Very emphasized.

Wes Moss [00:07:53]:
There’s no sagging, there’s no inflation. Next question.

Connor Miller [00:07:56]:
That’s a little more fitting for the Fed.

Wes Moss [00:07:57]:
Speaking of AI, and I know we’re going all over the place here, but ever since we had this revolution not start, because AI has been around now for, it’s been a decade couple. It’s been a couple decades they’ve been working on this, but it started to really come to fruition and public use around the chat GPT launch, which was what, November of last? So year and a half, and we’ve been continuing to think about how does that become an economic tailwind across industry. Of course, if you look at the epicenter of artificial intelligence, we need the bandwidth for it, we need the memory processing, we need the video chips to be able to do it, or the semiconductors to be able to process all of this, the data centers. But as the use, what are the use cases of artificial intelligence? And we get smart, we keep learning more of these real life use cases, and I want to continue to bring this to us because my point around AI is that it’s a tailwind for industry, it’s a tailwind for the economy. It’s not just AI in itself, but when this whole first, when it started, call it a year and a half ago, my best guess was that it would be able to help you write because that’s exactly what it did. It’s taken a little bit of time to figure out how AI can help businesses in general. And I read a couple new use cases this week, and I think they’re fascinating. Now, I don’t know if this is economically to the, if this is a good thing or a bad thing economically, maybe you weigh in on this, Connor, Wall Street Journal starts out by saying models can now, instead of going to photoshoots, they essentially have a few photos that they’ve done, and they now just license those photos and say, okay, you brand company, clothing company x, you can use my photos.

Wes Moss [00:09:57]:
I don’t need to come in for a shoot because now I’m letting you just AI my photos, and you can put whatever clothes on for your catalog. I’m sitting in a chair, I’m walking in a Runway. But they don’t even now need to go to the photo shoot. They’re just licensing a few photos that can now be AI generated, good or bad, for the economy in terms of.

Connor Miller [00:10:19]:
I guess, the people that are using the photographs it’s going to make. I would think that would make their business cheaper, but for the model, they’re probably not getting paid as much. Right?

Wes Moss [00:10:29]:
I don’t know. I don’t know the economics behind it, but I would say that you’ve got, it’s a much more efficient think about it. Essentially, it’s like you’ve recorded a song and you’ll just get royalties. It’s just a forever. You don’t need to do any more photo shoots. Technically, you. And they used a couple of examples of, there was a model, it was a guy model who did a few photo shoots, but he was sick of going and getting rejected and having to do calls for. He’d go to ten different auditions, and he’d get zero jobs or one job, but we got a few, and he was a real model.

Wes Moss [00:11:05]:
And now he just said, fine, here you go. You can have this on XYZ AI modeling company. And now he makes passive income from it.

Connor Miller [00:11:15]:
Well, now, I mean, we’re getting to the point we may even be already there where there’s just AI generated models where that are. You know, we’ve seen the pictures over the last couple years that look kind of fake. They’re getting to the point where they’re indistinguishable from an actual human. So, I mean, that could just be a business altogether that’s dying.

Wes Moss [00:11:38]:
So I don’t know about that. You may be right. That sounds like bad. It’s almost like if you can just make up fake music from AI, then that’s not good for the musician. If you can make up model photos, that’s not good news for the modeling industry. However, what it does lend itself to, which I think is the bigger, broader point here, and why it’s more of just a general tailwind, is productivity. If you can do one photo shoot, and that can lead to 20 different modeling gigs without ever having to go on another modeling gig. What is that? That person can go work another job.

Wes Moss [00:12:18]:
So that person now has just unlocked and now has a whole second job that is almost completely passive. Not 100%, because you still have to do deals with new companies. But imagine that efficiency and productivity boost. And we know productivity and increasing productivity is a harbinger for a better economy. And this, I can’t think of a better example. Take a couple photos. Granted, you have to be born looking like a Connor Miller to actually become a model to begin with, but then once you get a few photos done out of the gate. Sounds pretty efficient to me.

Connor Miller [00:12:57]:
All right.

Wes Moss [00:12:58]:
With that. So Conor didn’t jump in on that. That’s okay. He’s like, wait a minute. You called this? Conor’s gotten voted best hair in the office, what? Three years running. So. And being younger, of course. You’ve got great hair.

Wes Moss [00:13:12]:
All right, we got to run to break AI fashion models, digital twins for focus groups after the break. More money matters. Straight ahead. We keep hearing that inflation is coming down, but the past three years, the common man inflation gauge is still up over 20%. That’s necessities like food, gas, utilities and shelter. How can you possibly keep up? Well, one option is income investing. Thats using a combination of growing stock, dividends, bonds for more cash flow, and other areas that can be a hedge against inflation. Look, inflation is tough.

Wes Moss [00:13:46]:
Let us help you overcome it. Schedule a time directly with our team@yourwealth.com. Dot thats y o u rwealth.com dot. A chicken sandwich shows the hidden power in the US economy. A surprising surge of productivity at restaurants and other businesses has helped the nation defy expectations of a recession. Conor Miller we’re talking AI use cases because we think of AI as you think of it as, how would you characterize it? What is it going to do over time?

Connor Miller [00:14:20]:
Well, I think it’s going to depend on the industry. When it came out a year or so ago, I didn’t find much use of it personally. It kind of just felt more of like a better googler. Right. But as I’ve become more familiar with it, it’s actually starting to add to increase productivity just in our day to day jobs of whether we need help figuring out how to fix one of our models or just digesting a bunch of information.

Wes Moss [00:14:50]:
So it could take a job that might have taken you three or 4 hours. Does it reduce it down to 30 minutes?

Connor Miller [00:14:56]:
To 30 minutes, maybe even less so.

Wes Moss [00:15:00]:
Again, productivity. It’s that now Conor Miller can not spend 4 hours on that one project. He can do it in 30 and go do another project similar to if we’re looking. And again, this one I’m mixed on. Except I do think that we brought up the example of AI fashion models, which the Wall Street Journal covered this weekend. You’ve got a couple model photos. If you want to license that out to a company that does this and say, you can use my photos and AI and just generate whatever the company’s trying to advertise. You’re holding a phone or you’re sitting on new furniture or you’re modeling new clothes.

Wes Moss [00:15:40]:
Yes. It doesn’t sound good to me. The way I look at this, Connor, is that it doesn’t sound good for new models, but it sounds to be. It would be really good for existing models because now you can just sit back and say, here are my ten photos. Just go ahead and use. I’ll license you to use them in any way. It’s almost like a constantly evolving song. You wrote it and then you say, just you can keep using it and you can tweak it to make it a different song.

Connor Miller [00:16:08]:
Kind of.

Wes Moss [00:16:08]:
It’s. It’s almost like we haven’t seen this ever in the economy. It’s amazing.

Connor Miller [00:16:12]:
And now that I think about it more, it really is just maybe you can pay the model the same amount of money because there’s going to be so much cost savings across the board. Now you don’t have to fly to.

Wes Moss [00:16:23]:
Fiji to do the photo shoot.

Connor Miller [00:16:24]:
To do the photo shoot.

Wes Moss [00:16:25]:
That’s a half a million dollar photo shoot. All of a sudden, that just went away. Yeah, you’re right. So it’s efficiency, it’s productivity. Now those models can do their few photos and then just go work another job entirely. And to me, that’s a real economic tailwind. And it may be just a coincidence or it may be this starting to play out in real life or in real life use cases that we’re seeing productivity numbers in the US economy surge. Here’s another one.

Wes Moss [00:16:55]:
Digital twins for focus groups now right out of the gate. I don’t know if I even sent you this or have you read this, but what does that even mean to you on the surface? What, what would you guess that as? And it’s okay if you don’t know. That’s the whole point.

Connor Miller [00:17:09]:
I mean. Yeah, I. I don’t know.

Wes Moss [00:17:13]:
Digital twins, right? So think of this. The imagine a company that has great data. We always hear the data is so valuable. The data is so. How is it so valuable? Why? Why is the data valuable? Well, here’s an example. You know, let’s say you have 1000 customers or 10,000 customers and you have data on a really good handle, a good percentage of them, let’s say on half of your customers, you really know their habits when they buy certain things, what they buy, when they buy, and do they add things onto their orders? Whether it is, call it clothing or sporting goods, could be anything. So let’s say you have good buying habits of when people buy, how much they spend, what they bundle together. These are all little data points.

Wes Moss [00:18:09]:
What makes them happy when their reviews are good, when reviews are bad. And you get the McConaughey commercial, I think it’s a salesforce commercial where he’s jingling in his boots and he says, if AI is the Wild west, does that make data the new gold? Hmm. And here’s how it’s gold. Now we know about our customers. And now a company can, with artificial intelligence, recreate these, let’s say an entire group of customers. Let’s say, let’s take 100 of our customers, individual customers, and now let’s essentially make them a human like AI so that each, they build a model for each particular customer. Now they essentially have a focus group for anything they want to ask and it’s done and it’s free, you can use it over and over again.

Connor Miller [00:19:07]:
So instead of trying new things and having real world consequences or a real.

Wes Moss [00:19:12]:
World focus groups that take forever, they cost a lot of money. You go into your let’s take 30 of our customers, they’re AI generated, but they essentially are 99% like our actual customer. And let’s ask them, would you buy more of this? If we reduce the price by 10%? And the AI like model customer says, yes or no, what would make you buy more of this? The AI model that is essentially your customer says, here’s what would make me buy more. It’s astounding to even think about that.

Connor Miller [00:19:48]:
Well, it is funny how much we talk about inflation because obviously it’s a hugely important issue that impacts all of us. And I don’t think we’re necessarily there yet from an AI standpoint. But you can kind of see where the path is going of all of these cost savings. Ultimately that has to funnel down through to the consumer, which should really ease inflation over the long run. Again, short term, I think we still have some issues to work out in the long run. I think this should fix a lot of that.

Wes Moss [00:20:19]:
So this is a company that does this as a startup. It’s called Brock’s AI. They create, they call them digital twins. And I guess that just means think of a real live human. Then you’re creating your twin on with artificial intelligence. So that’s what’s called a, that’s a digital twin. And they can do this for thousands of individuals with detailed consumer profiles, all the likes, wants, needs, activities, habits of a XYZ consumer. And then the digital Personas can essentially stimulate real feedback, real focus group feedback, which a company can learn a lot from.

Wes Moss [00:20:57]:
Imagine if you could just say, I’d love 500 of my customers in a room, and I’d love to ask them all questions, and they’ll be totally honest and they’ll tell me what they think. Imagine how good that could be for your company. And you get to, you can test this with their reaction. So it’s this advent, and this also is scary. There’s a lot of, there’s some fear around this too, but these are companies that are creating digital humans. We are in the advent of digital humans, and it should be economic progress. Now, there will be issues around this. Now imagine if you’ve got, you go to imagine if what scammers and nefarious people can do with this.

Wes Moss [00:21:43]:
That is scary in its own right. And that’s why cybersecurity, digital security is, as we get smarter with the use of artificial intelligence, so does cyber insurance, so does cyber protection, et cetera. Security.

Connor Miller [00:21:58]:
Yeah, I think it’s such an important lesson in technology that in the right hands can absolutely be used for good. Obviously, in the wrong hands, we know what kind of danger that can be.

Wes Moss [00:22:10]:
And here’s the chicken and waffles. It’s Allie’s chicken and waffles in San Diego that has said that they essentially have an AI ordering system. So instead of having some human take the order and people walking back and forth between ordering the kitchen, customers can just go in to a busy, I guess it’s Allie’s chicken waffles and order. And I guess they get, they essentially have AI talk to them and they can make an order like they’re talking to a human. It hasn’t decreased any jobs, which is interesting. At Allie’s chicken and waffles, you immediately think, oh, well, there goes that job. It hasn’t done that. What it’s done is they are up 100% in their sales, so they’ve doubled the amount of chicken and waffles they’re selling with a similar amount of people.

Wes Moss [00:23:04]:
And they’ve even had to hire more people because they’re much more at capacity. And I think that’s another, this is another economic concept that we haven’t talked about for a while. Capacity utilization. Imagine. I think that artificial intelligence will help with capital utilization, meaning that if I’ve got a factory and if it’s humming on all cylinders and it’s running perfectly, it can kick out 100 widgets. But the reality is it’s staffed with a bunch of humans and we’re not always perfect and we’re sick and there’s issues. And really it only ever gets to about 72. What I think we can see with AI is getting that capacity utilization as close to 100% in all different industries.

Wes Moss [00:23:50]:
And if you really think about that, if you’ve got the final demand for the product or the waffle or the car or the photos or whatever it might be, or the focus group, then getting that capacity utilization up, same facility, same amount of people, it might, because it’s boosting productivity so significantly, it could actually increase jobs. Maybe not dramatically, but I could actually see it increasing jobs.

Connor Miller [00:24:15]:
Yeah. And like you said, you know, it’s not going to diminish jobs. If anything, it could increase the quality of those jobs. It’s not as they’re not in as much of a stressful environment. You know, they could just, they could feel more comfortable serving people as opposed to just, you know, creating widgets.

Wes Moss [00:24:34]:
You’re throwing chicken and waffle orders at me. Please stop. Let me just. Just talk into the machine. It’ll get your order right and I can facilitate the order. So you’re right, it really is a question of are we shifting the way we’re working in this newer economy? And I was a bit excited about this because I knew a year and a half ago how much I didn’t know. And I was so excited to start hearing these examples of how this is going to really help us or hurt us. And now here we are, a year and a half later, we’re starting to see real life use cases.

Wes Moss [00:25:09]:
Companies like, what was it? Brock’s AI or bro AI? I can’t remember what it was.

Connor Miller [00:25:15]:
Brock’s AI and Allie’s chicken and waffles.

Wes Moss [00:25:18]:
And I still don’t know the name of the artificial intelligence photography model company, but we’ll find that as well. But we’re seeing some real life use cases and it’s exciting. It’s economic productivity perking up, which we think can be good for the economy, b, can be good for inflation. Jerome Powell this week the Fed left rates right where they were. I know the world would love to see lower rates, but Powell said, look, they’re already restrictive enough. We don’t need to lower them right now. He took a rate hike off the table. Seems like market somewhat liked that this past week.

Wes Moss [00:25:56]:
And he also came up with the whole concept of guess what, guys, I don’t see the stag or the flation was his comment when it came to this worry around stagflation. Conor Miller, is this stagflation or are we jumping the gun?

Connor Miller [00:26:13]:
I think we’re jumping the gun a little bit. I think we got to have more data come out. Really, when you look underneath the surface of the print that scared everyone with GDP wasn’t as bad as the headline number. So I think Powell’s right in this instance, at least for now, no stagflation.

Wes Moss [00:26:29]:
Jerome Powell, Connor Miller agrees with you. Look, these guys are, they’re economists like everybody else. And we know economists don’t get everything right all the time. In fact, they usually get it wrong. But they get to say we’re data dependent. And the number, as the numbers change, we’ll change our forecasts and we’ll change our tune. That’s exactly what they’ll do. But for now, doesn’t look like interest rates are moving any higher, at least from the Fed, which we’ll take that.

Wes Moss [00:26:54]:
Conor Miller, you can now bet on anything you would like as long as you go to a Dave and busters. Again, another, this is another economic trend that I don’t know if I saw coming. But in retrospect, it makes so much sense. Think about how. And again, maybe it’s, I think this is just american culture. I bet you a dollar that I’m right or you’re wrong. I bet you a steak dinner if I’m right or you’re wrong. I bet you can’t hit that tree with a golf ball.

Wes Moss [00:27:23]:
I bet you can’t make that putt. What if I make that putt? What do you give me? So we just naturally bet as a society on little things all the time. And now with the rise of sports betting, which is a, there was something like $200 billion worth of games bet on last year, pretty good margins in that industry. That’s become a very, very real and very serious industry. But there hasn’t been a whole lot on just, I guess, what you would call casual betting or casual contests. Can you hit five free throws in a row? And even. And now that’s changing. There’s a company called Lucra.

Wes Moss [00:28:01]:
This looks like, they’re a startup, but they’ve partnered now with the company. Dave and Busters and Connor Miller. Have you been to Dave and Busters lately?

Connor Miller [00:28:11]:
It’s been a while.

Wes Moss [00:28:12]:
Do you recall Dave and busters? Like, what is in your mind? How big are they? How big is the space?

Connor Miller [00:28:17]:
So I’ve been to, like a main event recently, and in my mind, that’s very similar to a Dave and busters, just a big arcade.

Wes Moss [00:28:24]:
And I think that I haven’t been to a main event, but I was at a, one of my kids was at a basketball game, and in between tournaments, it was like a four hour break. The team went to a Dave and Busters. It was way up in Suwanee, but it was massive. It was the size of a Walmart, a giant Walmart with even taller ceilings. I was shocked at how giant it was. And of course, there’s arcades and it’s a sports bar, but there’s also all these games. Of course, there’s the classic, I call it papa shot, where you just. I don’t think they call it that.

Wes Moss [00:28:59]:
Skeeball or skeet ball.

Connor Miller [00:29:01]:
Skee ball, yeah, you got the. Where you could throw the football. That game right through whole.

Wes Moss [00:29:06]:
It’s almost like slash carnival. Now, Lucra is allowing participants, patrons, to bet on these games. So you go in there, it’s like you and your buddy and it. Who’s going to hit more free throws in 60 seconds? Now, you can bet at Dave and Buster’s $5. I think they may limit it to something like $10. But now social betting. Social betting, I think, is what they’re calling this is making its way into a place like Dave and Buster. So now there’s another.

Wes Moss [00:29:36]:
They’re gonna, they’re figuring out a way to now monetize you. Betting on, for you. You’re a semi pro cornhole player. Like, how, how many times can I. I’m gonna bet on the, on the Miller brothers over here or this other group. And we could do a real live wager on a company like, I think it’s called Lucra, which is a whole new industry that hasn’t even. It’s just brand new, just popped up.

Connor Miller [00:30:03]:
Capitalism at its finest. Right? Because this is what we’ve already been doing. You’re on the golf course. You know, you’ll bet a dollar a hole. Some people maybe a little bit more than that, but yeah, this is, it’s, it’s, it’s fun and look gamifying. Everything is, is. That’s what we’ve been doing for a long time now, right?

Wes Moss [00:30:21]:
It’s kind of. I was thinking as I’m reading about this. Wait, how did I not. Of course we’re gonna. Somebody’s gonna monetize this. And I guess it just makes sense that it’s about time humans found a technology to make it easier to bet on almost anything. And now I’m not an expert on gambling laws by any means, but lucrative seems to navigate the whole legality of this thing because there’s, I guess, a difference between contests and challenges. They say contests and challenges.

Wes Moss [00:30:53]:
They don’t say gambling or betting on their application. They are on the app, or I guess, the software, which now a company like a Dave and busters will implement so that the customers could bet on, I guess, pretty much anything. And there’s also a distinction between games of skill, connor, and games of chance. So if it’s purely chance, like a roulette wheel, that I guess you have to abide by gambling laws. But if it’s a skill like basketball or cornhole or whatever it might be, then I guess that can be more of just a contest. And the rules are maybe just more relaxed. And I guess that’s how they get around the legality of it all. But I think it’s still, to some extent, to be determined.

Connor Miller [00:31:35]:
Yeah, I mean, you can see, I think if, if this industry does blow up, which there’s a good chance, I mean, when you look at the amount of money Americans wagered in 2023, almost $120 billion. So the demand is definitely there. If, you know, if the industry picks up, I’m sure we’ll see all the legal ramifications of writing exactly all the rules around what we see here.

Wes Moss [00:32:00]:
So, Lucra, essentially solving the I bet you problem. I’ll bet you, I’ll betcha. And then never having a transaction occur problem, that’s a problem. How many times do we make bets? And they don’t really ever go anywhere. I think that’s the problem they’re solving for now. I’m not sure that’s all. I’m not sure that’s a real problem, but at least they’re solving for some, I guess just something that’s a human quirk. And it might be a lot of fun and it might be a real company.

Wes Moss [00:32:28]:
One day we’ll know. Who knows? It’s a startup. So onto a more important topic than Dave and betting your buddies at a arcade at Dave and busters. Now let’s go to look, there’s a reason we spend a lot of time on money matters, talking about withdrawal rates and what it takes for your money to last. When it comes to planning and investing, barring getting savings, making your savings last, it has to be the topic, number one. It’s got to be the most important of all. Again, once we’ve got the money saved, the whole point of saving investing is to be able to live off what you’ve sacrificed for and have income and take withdrawals from your retirement assets and then be able to increase that for the insidiousness of inflation, protect your purchasing power. But it’s not all that easy.

Wes Moss [00:33:25]:
And it’s not as though there’s a perfect formula that works for everyone because everybody needs a little bit different. Everyone needs different amounts of money. Some families I work with have super low spending and it’s almost shocking to me. And now I’m still in a pretty high. We know in America that we continue to spend more. We peak in our spending at around age 50. Makes sense because that’s about the time our kids are in college. So I’m still in the spending more mode, and I’m looking forward to a day where we’re spending less.

Wes Moss [00:33:58]:
But by the time you get a retirement, you may be spending not a whole lot at all. I have families I work with that they’ve got a good amount of Social Security, they’ve got some pensions, and they say, look, I don’t need any of my assets, or I only need 2% of my assets in any given year, and that’s great. And they’re not even really worried about the 4% plus rule because they don’t need to try to figure out a way to max out what they’re taking out.

Connor Miller [00:34:25]:
Well, and how I always look at it, and I’d love to hear your thoughts, too, is what we want for retirees, or just anyone who’s withdrawing from their portfolio, is you want to be able to take out the maximum amount possible without taking on too much risk that that withdrawal will end up causing you to run out of money.

Wes Moss [00:34:48]:
And that’s why I think it’s so important to do the math around this and look at market history and look at different mixes of what’s the right balance. What gives us the best probability if we want to do this, let’s say 4%, what gives us the best probability if we want to do 6%, which arguably is a little high relative to the industry? Then there’s families that they don’t need to. They don’t need four, they need six, or they might even need more than that, and in order to cover the bills, sometimes it’s only for a year or two. Hey, I need to take five, six, 7% for a couple of years until Social Security kicks in, and then the withdrawal rate can go down to a slightly more conservative level. But again, 2% doesn’t cut it for everybody. 4% doesn’t cut it for everybody. So what if you needed to do 6% in order to live the lifestyle you want to live? Remember this, too, Conor Miller, when it comes to money and it comes to finances, no one is crazy. Your situation is what it is.

Wes Moss [00:35:49]:
When you decide to retire, you simply have to make the best of the cards that you’re dealt or that you’ve dealt yourself. So today, let’s say that the 4% withdrawal rate just doesn’t cut it for you and you need six. What can you do? What should you do? This is enter Conor Miller research from this past week. Let’s say, what is the asset mix need to be, if you really do want to push the limit here and take 6% a year, what’s ideal if you want the least amount of risk? But the question here would be, and I know we did a whole show around Dave Ramsey, and I think. Was it? I think he said 8% rule.

Connor Miller [00:36:29]:
8% rule? Yeah.

Wes Moss [00:36:31]:
He said, oh, well, the market goes up 10% a year, you can take 8%. And the whole world went ballistic. Wait a minute. You can’t take out 8%. And we did, too, because there wasn’t a whole lot of. On the surface, that kind of sounds like it could make sense, but of course, that doesn’t work. And even the 6% doesn’t give you a super high probability of working in money lasting 30 plus years, because that’s our test. Does it work? Meaning does it last? Does your money last 30 plus years at a x percent rate plus inflation? But it’s not impossible.

Wes Moss [00:37:04]:
And I think that’s the key here. It’s not a low probability that you can’t do that. It’s just not a 99% probability. So I don’t know if this fidelity study prompted this for you to kind of dig in and do your own version of this research. First, we find this fidelity study. It looks at withdrawal rates and the probability of not running out of money in a slightly different way than we’ve talked about here on the show. They asked, what withdrawal rate can I use at different asset mixes, stocks, bonds, cash, to reach different confidence levels. So this is really around a.

Wes Moss [00:37:47]:
What’s my confidence level? If I want a 75% chance that over 25 plus years, my money’s never going to run out. What rate could I target? If I want a 99% confidence level that my money would never run out, what rate would I target, and what asset mix would I use? For example, if I was okay with a 75% chance of success? Success. Here again, 25 years plus, what would I do? Well, the fidelity study shows us that if I used a balanced mix of assets, essentially 50% stock, 50% bonds. Bonds and cash, then I could take out 5%, 5.6% per year as a max. That’s a lot higher than the 4% rule. But we’re not giving a 99% confidence level here. We’re saying it works 75% of the time, so it’s not impossible three quarters of the time over the last. Call it.

Wes Moss [00:38:48]:
I don’t know. Is this. Do we know how long this study went back?

Connor Miller [00:38:51]:
Back to 1926, so almost 100 years.

Wes Moss [00:38:54]:
Okay, it’s kind of some time economic history. 75% of the time, you start with. Let’s call it again, it doesn’t matter what your savings are. A million dollars makes it easy. Round number, you would start with 56,000 a year and then adjust that for inflation every single year. And 75% of the time, that worked in a balanced mix. So it’s possible. It just doesn’t give us the highest confidence.

Wes Moss [00:39:22]:
And some people, of course, would want that. So we’ll talk about, how do I do this with the highest confidence level? And then what if I need to push this to a round number of 6% withdrawal? We’re going to do the math and the study around that as well. More money matters, straight ahead. We are tackling withdrawal rates here on money matters. We talk about a lot because it’s arguably, barring saving money, maybe the most important thing in all of retirement planning is to not run out of money. How much can I use without running out? And the way we do this, I want Conor, you to explain, as we’re going over the course of economic history and we’re looking at different withdrawal rates with different asset mixes, how are we saying the money doesn’t, quote, run out? How are we running these numbers?

Connor Miller [00:40:13]:
So, yeah, just as a quick refresher, the 4% rule states that you can take 4% of your starting value in retirement.

Wes Moss [00:40:21]:
So if you have a starting value.

Connor Miller [00:40:23]:
You have a million dollars, you take 4%, that’s $40,000 a year. And then every year after that, adjust higher for the rate of inflation to protect your purchasing power.

Wes Moss [00:40:34]:
And then we see how long it lasts starting in any given month, or do you do it any given year?

Connor Miller [00:40:40]:
Our study goes back just any given year. So starting at January 1, going all the way back to 1928. So almost 100 years there. And then we look at different allocations. So we look at if a portfolio has 60% stocks, 40% bonds, that’s your traditional 60 40, or maybe 40% stocks, 60% bonds, maybe more.

Wes Moss [00:41:00]:
Conservative, right? Conservative. How does that work out?

Connor Miller [00:41:03]:
And what we’re trying to accomplish is, at what level of confidence can you have a really high probability of success, of either not running out of money or transferring wealth to the next generation or, if you’re charitably inclined, whatever financial situation you want to end up in, ultimately, what allocation and what withdrawal is going to give you the best confidence there.

Wes Moss [00:41:30]:
Right? Because then, and the reason we did this, we started with four. We also know that 4%, it just isn’t enough for some people. So what if you want to push that limit, the upper limit a little bit? And now you say 5%, or really, in this case, we say, well, what if you need six? And you start out same exact parameters, except you start with 6%. So 60,000 on a million dollars, and then you ratchet that number for inflation every single year. How long does that last? Which essentially gives us a confidence level. Does it last for how many times? Or what percentage does it last? 30 years or more. What percentage does it last? 40 years or more, et cetera, or 50 years or more? And that essentially gives us a confidence level. Now, of course, the numbers, the confidence levels are not going to be as high with six versus four, because we’re taking out a lot more money, got inflation on bigger numbers.

Wes Moss [00:42:28]:
And the question would be, if you got to take, if you do need to push the limit and you do need to take out more, what kind of allocation works at least gives you the best probability of success, at least over history. We can’t predict the next 100 years. Of course. All we can do is look back and see what equities have done, what bonds have done, what cash has done, et cetera, and extrapolate that out along with inflation over time. And it gives us a really good guide. And in retirement planning, if we can utilize history as our guide to get us to a high confidence level and make our overall spending available and work in a retirement plan, that’s what we’re trying to accomplish so that we could live a happy retirement and do all the core pursuits that we’d love to do. So how would you describe this, Conor? If we looked at starting with really 4%. Yeah.

Connor Miller [00:43:23]:
So we’ll set the table here and then we’ll talk about if you need to have a higher withdrawal rate, maybe what that allocation would look like. And really how we arrive at what your optimal allocation is for withdrawing 4% is. We look at it a couple of different ways. So we ran it in a conservative portfolio, which is less than 50% in stocks, more of a balanced portfolio of 60% stocks and 40% bonds. And then we took an extremely aggressive portfolio, which was 100% in stocks.

Wes Moss [00:43:55]:
Again, when you say stocks, we’re using s and P 500 going back to 1920.

Connor Miller [00:44:01]:
1920, 819, 28. Almost 100 years. When you look at taking a 4% withdrawal rate from a 60 40 portfolio.

Wes Moss [00:44:11]:
60 stock, 40 bond.

Connor Miller [00:44:12]:
That’s right. The reason we have such a high confidence in the 4% rule of thumb, you know, have to caveat that in there, 4% rule of thumb. There’s no guarantee, obviously, in any of this, but based on history, you have an extremely high probability of success, is that if you take 4% and you adjust for inflation in a 60 40 portfolio, you have about a 99% chance, based on history, that your money is going to last you at least 30 years. And so your worst outcomes, actually running the scenarios back 100 years is a 30 year period. So basically, there hasn’t been a period over the last 100 years where you ran out of money using the 4% rule in a 60 40 portfolio.

Wes Moss [00:44:59]:
Right. Your worst case scenario was 30.

Connor Miller [00:45:01]:
That’s right. When you switch to a more aggressive portfolio in 100% stocks, you still have a pretty high probability of success. So the odds of your money lasting 30 years, 97%.

Wes Moss [00:45:17]:
So really similar as far as if we’re looking over the course of that whole hundred period of time at a high level, almost 100.

Connor Miller [00:45:24]:
Here’s the difference between the two numbers. And this is why we recommend more of a balanced portfolio as opposed to just an all growth portfolio. It’s your worst outcomes. Right. We already mentioned your worst outcome in a 60 40 portfolio based on history, was 30 years.

Wes Moss [00:45:41]:
And then the next few worst outcomes were still really good. 31 years, 37, 38, 39. That was your worst five.

Connor Miller [00:45:49]:
That’s your worst five.

Wes Moss [00:45:50]:
They lasted 30 to 39 years, were your worst five.

Connor Miller [00:45:54]:
So here’s where the difference is.

Wes Moss [00:45:56]:
What are our worst five with 100% stock portfolio?

Connor Miller [00:46:01]:
In the worst case scenario, you ran out of money in 16 years.

Wes Moss [00:46:05]:
Yeah. That’s not going to work.

Connor Miller [00:46:06]:
That’s just not. You can’t take that risk when you’ve already hit a home run. You’re already, you know, standing at the tee box on the 18th tee and you’ve got a five shot lead. You don’t need to pull out. The driver just hit an iron down the fairway. Keep it in play and you’ll be good to go.

Wes Moss [00:46:24]:
By the way, I played with a guy the other day who hit on a par three. He had a driver and I thought, what is this guy doing? It was like 150 yards thing landed right on the green. Bernie. Not to say that that wasn’t a good analogy, Conor, but I’m still shocked to this day about that driver shot. So the worst outcomes were, the worst case scenario was 16. But also there’s another scenario where it only lasted 1726, etcetera. And really a couple times. A few.

Wes Moss [00:46:59]:
Mostly this one, you stay on the racetrack, but there’s a couple times if you’re 100% sucks, you could end up hitting the wall.

Connor Miller [00:47:05]:
This is like a. Just in case your hundred year flood comes, right. You don’t build on the area where you’re in 100 year flood territory. Not that it’s likely that it’s going to happen, but there is a probability, slight chance that it does, and you just don’t need to take on that risk.

Wes Moss [00:47:23]:
All right, now what about 6%? Looking at a 6% withdrawal, again, using all the same historical parameters, it’s a much taller order, obviously. It’s dramatically higher. Four and six don’t sound like a whole lot, but it’s 50% higher. So 6%, what would we do? What does this look like? Conservative portfolio versus all stocks?

Connor Miller [00:47:48]:
Well, that’s the thing with 6%, you already taking on more risk. Just because you’re withdrawing, you’re pulling more from the portfolio every year, so you’re putting more stress on it.

Wes Moss [00:47:58]:
Again, just for, in terms of numbers, million dollars, your first year is 60,000, not 40. Adjusting 60 for inflation forever.

Connor Miller [00:48:07]:
Right. And so we, we broke it down the same way where we put it in conservative portfolio, balanced, and then a growth portfolio as well. As you would expect, pulling more from the portfolio, your numbers look a little bit worse. Right. So after the 30 year mark, a 60 40 portfolio survived about 63% of the time. So let’s call it two thirds of the time for. For safe math. And your worst case scenario, there was 16 years, remember, with a 4% withdrawal rate was 30 years.

Connor Miller [00:48:38]:
This is about half that at 16 years.

Wes Moss [00:48:41]:
And many of these, it looks like a lot of stability here because 16 years happened, that shows up a lot as a worst case scenario.

Connor Miller [00:48:50]:
Yeah, exactly. And let’s just take the conservative portfolio off the table here, because really, if you’re taking that withdrawal rate, you just can’t have conservative mix. It only lasts you about a third of the time. So let’s focus on this.

Wes Moss [00:49:04]:
Was the majority in fixed income, very little in stocks. That just doesn’t work.

Connor Miller [00:49:09]:
It doesn’t work. So let’s talk about the all stock portfolio versus the more balanced 60 40 portfolio. When you look at what that portfolio did over the course of 30 years, 71% of the time that portfolio made it, it’s different from that 4% where the balance portfolio actually lasted longer than.

Wes Moss [00:49:33]:
The all stock portfolio.

Connor Miller [00:49:35]:
In this case, with a 6% withdrawal rate, you’re actually better off leaning more into stocks. Again, you’re taking on a little bit more risk because it is a little bit more, it is a little bit riskier.

Wes Moss [00:49:49]:
Well, it’s a taller order, taller order.

Connor Miller [00:49:51]:
To take on that 6%. And then here’s really the, this is why the risk is worth it is because, as we just mentioned, your worst case outcomes, where a couple of 16 years and then 17 years for the worst five outcomes for a 60 40 portfolio, for 100% stocks. Ten years, eleven years, 14 years, 14 years and 14 years to round out the worst five. And so there’s just, they’re not that different.

Wes Moss [00:50:18]:
The worst case scenarios on running out really quickly, hitting the wall, well, this is not a hundred year flood, but hitting the wall, and the whole thing doesn’t work. They’re pretty similar between the two, meaning that the worst case outcomes between the balance portfolio and the all stock portfolio are similar. However, there is a higher probability that money doesn’t run out in the 100% stock portfolio. Yeah.

Connor Miller [00:50:44]:
And so, just as we’ve been saying internally, really, contrary to what you may believe or think, growth is actually the antidote to a high withdrawal rate. Growth as in stocks, not fixed income.

Wes Moss [00:50:59]:
Wow. It is an interesting way to look at that. We’ve, we’ve never run 6% because it was so far out of bounds. But I think it’s just a really important, it’s, it’s an important exercise because a, some people do need 6%. And if, if you need it, what’s the best way to approach it, as opposed to just say, oh, you can’t do it? Well, this shows that we need, we, we would have a propensity to have a much higher percentage in equities because that’s the antidote to keeping up with inflation and generating enough to cover that much higher number. Let’s call it a taller order. So the bottom line here is that using the 4% withdrawal rate, 4% plus is of course, better, is maybe not the right word, but safer. If you’re worried about running out of money, then 6%, of course.

Wes Moss [00:51:53]:
And of course, if you want to have money left over retirement, the much higher probability that you have a lot of money left over. You’d have more money left over if you’re only pulling four versus six. But 6% is not impossible. If you want the highest confidence level, maxing withdrawals out without running out of money and get 99% confidence, you can get there using the 4% withdrawal methodology. But you would do that in a balanced portfolio, not all stocks. If you want the highest confidence level, you can get. Again, historically, with a 6% withdrawal, history suggests you’re largely better off with a higher probability of not running out of money by simply being 100% stock investor. The message is really clear, I think, that you wrote the antidote to a high withdrawal rate.

Wes Moss [00:52:48]:
The antidote to a high withdrawal rate is growth stocks. More in equities, more in equities. I think we’ve talked enough about the four and the 6% rule we’re going to be publishing. It’s really the 4% plus rule. That’s what we stick with. But we just went over, what if you need more? What if you need 6%? Of course, it’s not ideal, but at least what gives you the best probability of success if that happens? And again, the answer was higher percentage in equities. It gives you a better shot of not running out of money if you happen to have a higher withdrawal rate over time. One thing we have not mentioned today or talked about are the latest housing numbers.

Wes Moss [00:53:30]:
Housing is the next biggest asset for a lot of families.

Connor Miller [00:53:33]:
It’s the biggest asset.

Wes Moss [00:53:35]:
The equity in your home, of course, as much or more than most people’s 401 ks, particularly now because we have continued to see housing prices just go up and up and up. And this is the latest. Kate Shiller Home price index is the national index. There’s a ten cities and 20 city, but this is the national index and in the latest month. And it’s so backwards looking, too. This is such old data, because here we are in May, and this is, I think this is still the February housing number, which is the latest number, which seems like it was forever ago. But again, at least it gives us direction. Up over 6% year over year.

Wes Moss [00:54:15]:
And if you look at the ten and the 20 city models, they’re actually a little bit more than that. But in general, housing up another 6% over the past year, 6.4 to be exact. The bigger story though, Conor Miller, is really go back 1011 years. Go back to Feb of 2013, that’s eleven years. And the index went from 145 to 312, which is a 115% rise. So if you’re wondering why your property taxes are off a hunt doubled over the last decade, it’s because your housing value has probably doubled as well. Some of these cities. Conor Miller what’s on fire and what’s languishing behind?

Connor Miller [00:54:55]:
Well, I mean, when you look at some of the cities in California, San Diego is up 11% over the last year we had Chicago up 9%. Honestly, the thing that sticks out to me most in all of these cities is at least half of them are at record highs. We saw a little bit of a period there where housing prices may have dipped just ever so slightly, but in most of these markets we’re at record highs in terms of housing prices.

Wes Moss [00:55:24]:
Right. So fresh high for San Diego, Chicago, Detroit, New York. I read Atlanta. There was an article, I don’t know where this was, but it was some travel magazine is talking about the three most interesting places to go in 202-42-0251 was in Paris, one was in the Middle east and one was Detroit. I think that their advertising slogan on bus stops now is come to Detroit or something like that anyway. But again, Detroit at an all time high. The two cities that have had the least growth though over the last 20 years, this is kind of interesting. Chicago and Detroit, those are the two least amount of home percentage growth that we’ve seen.

Wes Moss [00:56:13]:
Cleveland is kind of in third place. And then of course you look at a company, if you look over 20 years, what housing market has up over 150%? There’s a few of them. Portland, Dallas, Tampa, Phoenix all and Miami all.

Connor Miller [00:56:29]:
Seattle actually the highest on the list too.

Wes Moss [00:56:32]:
Almost 200% over the last 20 years. We’ve got to run. Connor Miller, too much fun to even stop. We’re going to wrap it up today. You can find me and Connor Miller. It’s easy to do so on yourwealth.com. Y o u rwealth.com Connor thanks man. And for all of you, have a wonderful rest of your day.

Mallory Boggs [00:56:57]:
This is provided as a resource for informational purposes and is not to be viewed as investment advice or recommendations. This information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. The mention of any company is provided to you for informational purposes and as an example only and is not to be considered. Investment advice or recommendation or an endorsement of any particular company is not indicative of future results. Investing involves risk, including possible loss of principal. There is no guarantee offered that investment return, yield, or performance will be achieved. The information provided is strictly an opinion and for informational purposes only, and it is not known whether the strategies will be successful. There are many aspects and criteria that must be examined and considered before investing.

Mallory Boggs [00:57:45]:
This information is not intended to and should not form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment tax, estate or financial planning considerations or decisions. Investment decisions should not be made solely based on information contained herein.