MtoM #169: Homeless to a Quarter Million Dollars and Finance 101: Risk

This is the White Coat Investor Podcast, Milestones to Millionaire Celebrating stories of success along the journey to financial freedom, this is Milestones to millionaire podcast number 169, homeless to a quarter million dollars. If you are finding our podcasts informative and helpful, check out our website. Since 2011, we've been working hard to provide valuable personal finance and investing information. Through thousands of blog posts written by an array of author, you can find information on how to manage your student loans, fix and avoid common financial mistakes, understand your retirement accounts, optimize your investments, find professional help at a fair price, get started investing in real estate, and so much more, all at no cost to you. You can find out more about the courses we offer, the conferences we put on, the newsletters we provide, and interact with other WCI readers through our online forum. Head on over to whitecoatinvestor.com to start learning today. You can do this and the White Coat Investor can help. Welcome back to the Milestones to Millionaire podcast. This is the podcast where we take your experiences and your accomplishments and use them to inspire others to do the same. We'll celebrate anything with you. Whatever your accomplishment might be, whether it's a net worth milestone, whether it's paying off some sort of a debt or making some purchase you've been saving up for, whatever it might be, we'll celebrate it with you and use it to inspire others to do that the same. I want to make sure those of you out there who are still trying to become financially literate know about this great resource we have. We call it WCI101 or the financial Basics. You can sign up for this free resource@whitecoatinvestor.com basics. Basically, what you're signing up for is to get a bunch of short emails you'll get Every few days for a number of weeks, you'll get a bunch of short emails that will teach you finance. And if you read through these, by the time you get to the end of it, you will be dramatically more financially literate. And the combination of financial literacy and financial discipline is so powerful then so unusual in our world that it's like having a superpower. Anyway, you can get that whitecoatinvestor.com basics all right, we got a great interview today. As you heard in the title, our podcast guest has actually spent some time homeless and is really now building wealth very rapidly. And so I think it's a pretty interesting story, a little bit different from most of the ones we've had on this podcast. But stick around afterward. We're going to talk for a few minutes about risk when it comes to investing in risk management. Our guest on the Milestones to Millionaire podcast today is Josh. Josh, welcome to the podcast.

Hey, how's it going, Jim? How are you doing?

Good. Tell us what you do for a living and how far you are out of your schooling.

Sure. So for the last 10 years or so, I've done what people refer to as technical coaching or agile coaching, basically helping software development teams and engineers work better together as teams to deliver worthwhile products to market. And I've been doing software development myself since 1998, and I graduated with my undergrad in 2006.

Okay, so since 2006 and what would you say over that time period your income range has been.

So my income has ranged anywhere from, I would say around $14,000 all the way up to most recently was $136,000 per year.

Okay, so pretty broad range. And let's talk about what milestone we're celebrating today. You hit a net worth milestone recently. Tell us what it was.

Yeah, so my net worth hit and stayed at the important part. It stayed there for a while. $250,000.

Very cool. And what's that composed of? What's in there? How much is cash? How much is in retirement accounts, how much is a house? What is it?

Sure. So right now it's roughly about 6% cash. And the rest is all index funds.

In equities in retirement accounts or just in a taxable account.

Oh, that's fair. So I do have a little bit in the Roth. I would say it's around 20,000 in the Roth. Most of it's in traditional because rollover from 401ks and then there's about 60 or 70 in taxable.

Very cool, Very cool. And you got any debts?

Not anymore. Yeah, unlike what happened with a lot of people during COVID 2020 was actually a pretty good year for me. So I got out of debt, completely out of debt at the tail end of 2020, and I started rigorously investing in beginning of 2021.

What kind of debts did you have prior to that?

So I had about $120,000 in student loan debt and then about another 50,000 to 60 in credit card.

Okay, so you had a cleanup job there?

Yeah, yeah. Let's just say 2007 to 2010 was kind of rough.

Okay, and you carried those debts from that time until close to 2020?

Yeah, I think at that time I was making about 20,000 a year as a freelance web developer, business consultant. And then, yeah, it Just, I finally found gainful employment in 2011, and then, yeah, spent the next 10 years just getting out from under that.

What do you think the nadir was? How low did your net worth ever get?

So when I actually started paying attention. So that would be my other piece of advice, I guess, would be pay attention. So when I started paying attention again, I would say that my complete negative was 150, somewhere in that neighborhood.

That's a pretty good swing from negative 150 to 250,000 on the positive. Well done.

Yeah, thanks.

Well, you've had a little bit of a different journey, I think, than a lot of listeners. A lot of listeners to this podcast are doctors. They start out with these huge debts, and then they come out and they negative $400,000, but they have a good income. They have a big shovel, we call it, and they start making progress rapidly if they pay attention. That wasn't necessarily the case for you. You had a lower range of income than many of our listeners and yet still are managing to build wealth. So tell us your journey a little bit.

Sure. So 2006, graduated with undergrad. 2007, I quit and decided that I was gonna go run off and try to do freelance business consulting. And then during that time period, I was able to do that full time. And part of why I was able to do that was through starting graduate school to keep my student loans in deferment. And then 2010, finally the great Recession finally hit my clients, and I ended up becoming homeless for that year. And then, yeah, it took me about a year to bounce back from that. I did some work with the Census bureau during the 2010 census while being homeless. I hope I don't get arrested for saying that, but, yeah, it was definitely an interesting ride. And then 2011, I got fortunate enough to start with 70k. So again, not a doctor's salary at all. But then, yeah, we just kind of stepped up and stepped up. I don't think I broke six figures until 2015, 2016, but after that, it went really fast because I also didn't get tripped up with the Diderot effect and the hedonic treadmill either. So as my salary kept increasing, I was like, yeah, no, I'm still homeless, Josh. Living in my car, it's fine.

So I'm an emergency doc. So I interact with the homeless all the time. And I know there's a broad range of the homeless. People have this image in their mind of the homeless is a bum sleeping on the corner, alcoholic, doing nothing, mentally ill, et cetera. But the truth is, most homeless are not like that. They're much more in your sort of a situation, couch surfing, staying in their car, trying to get work, et cetera, et cetera. What experiences did you have when you were homeless that you think would be useful for our audience to hear?

So I think for me, the big thing that impacted me was kind of what you just observed, which is the just how many working homeless there actually are in the United States, because that's where I was. But, you know, like, I. I would sleep in my car at a truck stop, and every once in a while people would pull up and they would have these vans that had, you know, like marketing locos for their. Their business. Right. Like, one person I knew, well, I didn't know them, but, like, who pulled up next to me one time was a computer repair person. They just would drive out to somebody's house. But, you know, when they open up the side of their door, there's a cot in the back of the van. So, like, you would be surprised how many people are actually unhoused but are doing very technical work. I ran into a woman who did virtual reality worlds for. She was working with Kennesaw State University out in Georgia making these virtual reality worlds. And she had a storage unit and a converted van that she lived in. So, yeah, it's quite fascinating, but it's not something that normally you're just like, hi, I'm Josh and I'm homeless.

Right.

That's not something that pops up in normal conversations.

So how did that imprint on you and the way you manage money now, I mean, now you're making a pretty good income. You're making a six figure income, you're building wealth, you're completely debt free.

Free.

How did that year or so when you were literally living out of your car, how did that impact how you make money decisions now?

So I found that I wanted for less, if that makes sense. Like, I just, I sort of became at peace with having less and less stuff. It wasn't about, you know, what can I collect over here? It was became more about what experience am I having? And sort of the man's search for meaning, you know, Viktor Frankl, where it's like, how do I respond to this situation and not lose sight of, like, one of the things that I told myself when I first decided to become homeless was, you're homeless, not hopeless. And so like, keeping that vision on what a future could be, but not making it so grandiose that, you know, it was unachievable. You know, with like five cars and a 50,000 square foot mansion or anything like that. It was just, hey, how can I have a better shirt today? And how can I get into a studio apartment? And then what about a one bedroom, that sort of thing?

Now you have a partner now and you're sharing expenses. What kind of an impact has that had on your ability to build wealth?

That's a great question. So I would say that the first thing that actually impacted my ability to build wealth was actually getting rid of my car in 2012. And then the second piece would be having someone that I could share and split bills with. Right. Because there's a fundamental difference between paying $1,500 a month in rent versus 750 split between two people. Right. So in a way we're kind of house hacking, but, you know, we are romantic partners, so it is a little different.

Yeah. So what advice do you have for somebody else? I mean, there's someone else out there who, for whatever reason, has been spinning their wheels. Maybe they're not living out of their car, but they've been spinning their wheels, not building debt. Maybe they're still the negative net worth. They'd love to be where you're sitting, right. Debt free with a quarter million dollars. What advice do you have for that person?

I think the biggest piece of advice that I have would be always be investing and taking advantage of what's available to you with regard to 401k, everything like that. Because when I first started, I got some advice from a. We'll call it a financial advisor, Right. And basically the advice was get out of debt first and then worry about investing. Because I was calling to talk about like, hey, I'm gainfully employed now. Should I start looking at my things like my Roth IRA and investing in that? And the advice was, no, just get out of debt. And I did. And so by the time I actually got out, I don't know when I actually hit back to broke, but by the time I got out, I had $40,000 in cash and no debt. But I also had no investments, like none. So always invest something.

Always invest. That's good advice. Now, a lot of trouble that people have sometimes when they come from a rough upbringing, you know, if their parents were lower middle class or if they've had some sort of, you know, traumatic financial episode in their life, such as you've had where you spent a year basically living out of your car. They develop what's called a scarcity mindset. And I think you've heard that phrase before. What have you done to try to not fall into that trap?

Yeah. No, and scarcity mindset is actually something we get taught a lot in my profession as well, where it's just, if this one domino hits, all of a sudden the rest of the world, the sky, starts falling. And I think, for me, I think it really comes back to enjoying and appreciating what I have instead of wanting for what I don't have and really trying to chase that, because I think scarcity comes more from paying too much attention to what you lack instead of really emphasizing what you have.

Right.

I once worked with somebody out of dod, former military. I know you're former military. My dad was military, actually. Are you still military?

I can't remember. No, I've been out now for 13 years.

Fair enough. One day I'm in the office and people are running around like they're on fire. And the cybersecurity guy is just sitting there as relaxed as can be compared to everybody else. And I walked over to him and I was like, okay, why are you not freaking out? And he basically said, listen, I'm not trying to kill anybody. Nobody's trying to kill me. And I get to sleep in my own bed. And I was like, that's a great outlook. I mean, it's terrifying and hyperbolic as it is, it's still just like, appreciate what you have and don't long for what you don't.

Absolutely. Well, you've become a quarter millionaire. What's next for you and your financial goals?

Yeah. So next, two big things. One, I'm trying to get back into being more freelance independent corp to corp kind of work from a contract perspective. And then there's actually four more milestones that I have because the quarter of a million is actually based off of what I call my Coast FI stack, which is basically just a bunch of numbers that I said, okay, if I don't save any more money, I could retire at 70 and probably be okay, and then build it back to 65 and then 60 and then 55 and then possibly 50. Right. So, yeah, I'm just going to keep trying to get those going and see what we can do while enjoying the ride, I guess.

Cool. Well, Josh, congratulations to you on your success, and thank you so much for coming on the Milestones podcast to inspire somebody else to do the same.

Yeah, absolutely. Appreciate your time.

Thank you. Okay. I hope you enjoyed that episode. It's really quite a remarkable story. Sometimes we forget that a lot of us had a pretty significant hand up in life just to be able to get a little help paying for school, or to be able to go home and live with parents for a while, or the income that we get pretty guaranteed once we make it into medical school. There are a lot of benefits that we have in life. Maybe we ought to be a little bit more grateful for. And there's nothing like truly being homeless for a while to make you grateful for just about everything in your life. All right, I promised you at the top of the podcast that we would talk about risk today. And there's a real problem in the financial world in that risk is often equated to volatility. You know, your investment's going up in value, going up and down in value, going up, going down. And that's what risk is, often in academic papers and academic journals. But honestly, that doesn't really matter all that much if you're investing for a goal that's 30 years out. Does it really matter what the volatility is between now and then? So long as you can control your behavior enough to not do something stupid because of that volatility, then it really doesn't matter. Right? That's not true risk. True risk is the permanent loss of capital where it's not going to bounce back. Now, you've got that risk if you've decided to run the undiversified risk by investing in something like individual stocks, right? Individual stocks can and do go to zero all the time. But if you're investing in an entire market via an index fund, that risk just really isn't there there, barring an Armageddon type scenario. So the real risks in your portfolio, if you have a portfolio of broadly diversified index funds, the real risks are the Four Horsemen of the Apocalypse, as Dr. Bernstein has described them. The first and most common one is inflation. And inflation's a big deal. Not when it's 3%, necessarily, although you do need to set up your portfolio such that you can overcome that sort of low rate of inflation that's pretty typical in today's financial society. The big risk is that inflation gets out of control. Now, we all understand this a little bit better now than we did five years ago. Our inflation in this country, as measured by the Consumer Price Index for urban consumers, peaked at just over 9% a couple of years ago. And at 9%, your wealth is really being eroded pretty darn rapidly. And so I was pleased to see the Federal Reserve take pretty significant steps to try to rein that in. You know, they can be criticized, and maybe they should have done it. A little bit faster. But at least they acted aggressively when it became time to act aggressively. Now that's caused a lot of pain. It's caused pain in the real estate markets, both for investors as well as people trying to buy houses using credit. It's caused pain for businesses that haven't been able to get the credit as easily as they would like to because interest rates went up 4%. But I assure you that all the pain in society now due to increased interest rates are far less than the pain we would have if we had let inflation continue to be out of control. All you have to do is look at a society like Argentina and what they're dealing with right now. They're literally having votes, trying to decide whether to even use their own currency. They may just start using ours because it's viewed as being more stable. Hyperinflation's a real risk. It's the most common of these four horsemen of the apocalypse. And your portfolio should be designed to withstand it. And you can do that by having a healthy allocation to assets that typically beat inflation. Things like stocks and real estate, things with higher returns than inflation has typically been. On the fixed income side, you can do things like keeping your durations short, okay? So that reduces your risk should interest rates need to be increased rapidly. And it helps you get the current going rate on those interest rates. Also, you can get inflation indexed bonds, you can get I bonds, you can get tips. Those sorts of things help you to keep up with inflation. Sometimes people make an allocation to other items in their portfolio, typically speculative assets. These might be commodities. It might be precious metals like gold or silver or platinum. It might be a crypto asset like Bitcoin. I would encourage you to limit your allocation to those sorts of speculative investments, but they can play a role in beating inflation. The next of the four horsemen is deflation. And the classic scenario historically to think about this is the Great Depression, right? This is a time of economic contraction and it really did a serious number on people's wealth. Now, those with long term bonds actually did pretty well in a deflationary scenario. But equities dropped 90%. Properties dropped dramatically. Some insurance companies didn't pay as they were supposed to. Number of banks failed. This is a real risk to your wealth to go into a real period of deflation. The next one is confiscation. And we all think we're dealing with confiscation every April 15th. And I suppose in some small way you are. But governments can do much more than what our government does to us. April 15th of each year, they can increase taxes dramatically. There are some societies in our world that have tax rates of over 50%, and they can go higher and higher and higher. In addition to that, sometimes private assets are simply taken by the government. I mean, you've heard the phrase eminent domain, right? They're going to put a freeway through and they can just seize your house. Typically, the fair thing to do is pay you market value for the house, but there's no guarantee that the government will actually do that. If you look at a period like 1918 in Russia, basically this communist revolution took place, and people just lost their private assets. They were confiscated by the government. Serious risk, difficult to protect against, not nearly as common as inflation. But you can see why some people do things like put a little bit of their money into Bitcoin. The idea being that maybe you can hide that from the government in a confiscatory scenario. The final big risk to your portfolio is devastation. Just widespread economic, political, social devastation. Imagine you're in Germany at the end of World War II or Japan at the end of World War II, and your cities have just been firebombed. Someone's dropped nuclear bombs on the cities in your country, and GDP is dramatically contracted. And it's just. It's devastating, right? Your entire house has been blown up, and no. No insurance company is going to rebuild it. That's a true risk. Very hard to defend against, right? I mean, I guess you can spread assets out in multiple countries across the world, but even then, there are no guarantees. But when you think about risk, those are the big risks in your life. It's not the little risks you see when you're, you know, looking at some financial study that shows a little bit of volatility of your investments.

So.

So keep that in mind as you invest. Try to deal psychologically and emotionally with your volatility, putting it in an appropriate place. But keep in mind what the true risks are to your financial life. If you are finding our podcasts informative and helpful, check out our website. Since 2011, we've been working hard to provide valuable personal finance and investing information. Through thousands of blog posts written by an array of authors. You can find information on how to manage your student loans, fix and avoid common financial mistakes, understand your retirement accounts, optimize your investments, find professional help at a fair price, get started investing in real estate, and so much more, all at no cost to you. You can find out more about the courses we offer, the conferences we put on, the newsletters we provide, and interact with other WCI readers through our online forum. Head on over to whitecoatinvestor.com to start learning today. You can do this, and the White Coat Investor can help. Thanks for being part of the White Coat Investor community. Thank you for listening to the Milestones to Millionaire podcast. If you'd like to be a guest on it, you can apply@whitecoatinvestor.com Milestones. Till then, we'll leave you with these words. Keep your head up, shoulders back. You've got this. We're here to help Tick off your milestones one by one, and you too can reach your financial goals. The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.