Huge Tax Bills at Vanguard: What Retirement Savers Need to Know

Jeremy Schneider: Welcome to the Stay Wealthy podcast with Taylor Schulte. I am your host Jeremy Schneider, filling in for Taylor for five weeks from the end of June to the beginning of July.

Today I will be diving into the controversy surrounding the Vanguard Target Date Index Fund Tax bill debacle of 2021, that is actually still ongoing. Maybe you heard about it, but specifically, I'm going to share what happened to these Vanguard Target Date funds at the end of last year to trigger potentially huge tax bills for some investors, why it actually happened, if it's going to happen again this year and what to do about it.

And I'm also going to answer two questions from listeners. If you're ready for a deep dive into Vanguard's Target Date funds, the tax implications, and best practices moving forward, today's episode is for you.

For all the links and resources mentioned in today's episode, head over to youstaywealthy.com/159.

All right, let's start from the beginning. Vanguard's Target Date funds. What is a Target Date fund? Taylor has talked about some of the shows before. I'm sure a lot of listeners to this show already know, but for some basic background, it's basically a mutual fund that contains a handful of mutual funds inside.

It's a fund of funds that is designed to be balanced across US Stock market index funds, international stock market index funds, and bond funds. And it doesn't actually need to be index funds that are Target Date funds that are actively managed. Vanguard's version is all index funds. These funds are designed to be balanced automatically and they also reallocate as you age.

If you are a young person in your twenties and you have like a 50-year investing timeframe, they're going to be about 90% stocks. But if you're a person around retirement age like 65, they're going to be more closer to a 50/50 portfolio of stocks and bonds.

Then if you're in your late seventies, they're going to be more like 80% bonds and 20% stocks and it does that nice asset allocation, so you don't need to rebalance your portfolio, you can just buy one fund inside of that fund is everything you need. It goes on usually age. It's like a one and done combo package deal of all of your mutual funds you need.

I actually really love Target Date funds, but something very weird and unusual happened to the Vanguard Target Date funds back in December. If you own one of these, on December 29th, 2021, you would've probably noticed that your Target Date fund dropped in value by between 10 and 15%. And this was an otherwise unremarkable day in the market.

The market was basically flat that day, but all these Vanguard Target Date funds dropped, their share price dropped by over 10%, which would normally be a catastrophic headline day in the market, but it was a quiet day in the market.

So what happened there? Well, what really happened is the underlying funds didn't lose any value. If you looked at all the underlying funds that Vanguard Total US Stock Market Fund, the International Stock Market Index Fund, and the Bond fund, they were all flat. Only the fund of funds, the combination fund of this Target Date fund dropped by 10 to 15%.

What actually happened comes down to dividends and share price and the relations between those. When you are an investor, your gains are based on the gain, the share price, which is what we watch every day when we see the S&P 500 or the Dow Jones go up and down, we're always watching the share price. But investors also get dividends and normally dividends are relatively small relative to the change in the share price. Right now, the total stock market is paying out a little bit less than 2% per year in dividends.

And so if those are paid out quarterly, you might get like a half a percent a quarter for owning an index fund, which you don't really even notice. And if it's reinvested, it's just kind of as part of the deal.

But what happened on this day is these Vanguard Target Dates funds paid out a dividend or a distribution of at least 10 to 15% of their share price. And so investors didn't actually lose money on that day. What happened is they just got paid this massive dividend and then the share price drops to basically pay for that.

And that's the relationship between dividends and share price in all funds. And so whenever a fund pays out a dividend, it's actually instantly on that day reflected in the share price. Usually it's so small, like I said, half percent of people don't really know us, but when it's 15% and the share price plummets, you definitely notice. And let me give an example of why this doesn't actually cost the investor money as a baseline.

Let's say you own a hundred shares of stock ABC, this fictional stock called ABC and the share price is $10 a share, a hundred shares times $10 a share is a thousand dollars. The value of your investment is a thousand dollars. Now let's say that stock pays out a $1 per share dividend. In order to pay that dividend, it needs to come up with a cash out of that fund.

The share price drops by $1. Now what happens is you still own your a hundred shares, but instead of them being worth $10 a share, they're worth $9 a share, which is $900. But you got a dollar per share dividends, which is a hundred dollars cash. So you have $900 in share value plus a hundred dollars cash equals a thousand dollars. This is what happened with these Target Date funds. They basically just paid some of the cash off the top, but you as an investor still had the same amount of money.

Now let's take that a step further and say you don't want the cash. You're not planning on selling 10%. You want to keep all the investment. So you would do what's called reinvesting. You take that cash, you take the cash that dividend or distribution and reinvest, buy more shares of the same thing.

With that a hundred dollars and the new share price of $9 per share, you can actually buy 11.1 shares of the stock, so then you'd end up with 111.1 shares of the stock total, the hundred you originally had, plus the 11.1 you can buy from this distribution just came out 111.1 shares at $9 a share equals a thousand dollars. You're basically, you're right where you started. You own more shares, they're worth less per share, but you still have a thousand dollars invested in this exact same stock or fund.

So that's the basic math, which is it didn't cost investors any money, but something did happen. Well, two things really happened that affect taxes and taxes are the big name of the game here. The first thing is when that distribution pays out, by law, you have to pay tax on it that year. So if you owned a thousand dollars of this fund and in a normal year it doesn't pay any distribution, you don't owe any tax on it, even if it's growing in value, you have an unrealized gain if it goes up in value, but you actually owe the tax in that calendar year.

But in this calendar year or last calendar or 2021 when the Vanguard Fund paid out this 10%, suddenly everyone's got to pay tax on 10% of the value of their fund if it's in a taxable account. And so in my example of owning a thousand dollars off of it, if you get that a hundred dollars dividend or the hundred dollars distribution, you owe tax on a hundred bucks for the calendar year of 2021.

But something else happens too, which is when you reinvest that you take, let's go back to when we bought these thousand dollars. I know this is, bear with me. I think it's worth just kind of breaking this down cause this goes to the core of how these funds actually work.

But when you bought this thousand dollars of the stock or the fund, let's say you only paid $500 for it, that's what you originally bought for. You held it for let's say seven years. It's doubled in value, which is great. Now it's worth a thousand. And so the value of your investment's a thousand, but your cost basis is 500. That means you have an unrealized gain of 500.

Then when this dividend paid out, the hundred dollars came off the top off the share price and then you bought back into it, your basis went from $500 to $600 because that a hundred dollars was all spent on the $9 share price.

And so your unrealized gain went from 500 to 400. All that's to say is it basically shifted around some taxes. You have to pay some taxes this year, but you'll pay less in taxes in the future because you already paid them on the gains this year. That's essentially what happened here.

And by the way, it pissed off a lot of investors because if you're just merely holding index funds, which are generally very tax efficient and think you're doing everything right and then you get a tax forum for Vanguard and say you owe tax on 10% of your investment or more.

And by the way this happened to me, I actually do hold over a hundred thousand dollars of a Vanguard Target Date fund in a taxable brokerage account. So this actually happened to me personally. And sure enough, I got a tax form from Vanguard that says I have to pay tax on like $12,000 of gains last year even though I didn't make any trades on it last year.

Okay, so why did this happen? And all these gains, we talk about dividends and dividends are usually paid out of profits from a company and our tax bill that year, this distribution that was paid out in cash was actually a long term capital gain. And a long term capital gain is when something inside of the fund itself sells that has been held for over a year. And then that gain that's realized inside of the fund has to again by law be passed on to the individual investors to pay the tax bill on it because the US government has decided that they don't want to let this unrealized gain keep accruing inside of these funds indefinitely.

That's not true in every country by the way. If you are investing in the UK, they have this thing called accumulating mutual funds where they just keep accumulating and accumulating and reinvesting internally and never pay tax in the dividends while you're holding them.

But that's not the case in the US. Anyway, if you look at the 2021 long-term capital gains distributions for the 2050 Vanguard Target Date fund for example, there are two cents a share, very, very small, meaningless, a few pennies on your taxes, whatever. But if you look at 2021 the next year, it jumped from two cents a share to $4 and 83 cents a share, which is again about 10% of the share price. That's a 263 times increase.

So something crazy happened and when this happened, I have about half a million followers across a couple social media platforms. I actually love Target Date index funds. I talk about them all the time. And so I owned one like I said, and I had my followers, my community kind of blowing me up being like, "Yo, what happened?" And so I actually called Vanguard that day or the next day and said, Why did long-term capital gains go up 463 times this year over the last year?

And basically, they gave me a BS line, they just said this textbook line, well, there's internal trades or there are funds performed well or blah blah blah. And of course none, I mean all that is technically why funds generally pay out dividends, but that's not what happened this year. Something weird happened.

And at the time I actually made a YouTube video about it and I went back and watched it to prepare for this podcast and I made a guess that there was some big massive exodus of some big company inside of the fund where they had to sell a bunch of the shares and then that company ditched and then that tax bill was then passed on to all the individual investors. And I was basically very, very close. But now we know exactly what happened and why it happened and to explain why this happened, we have to talk about the two share classes of each Target Date fund.

For example, Vanguard offers two 2050 Target Date funds. The first one is designed for consumers. For example, there's a 2050 fund with a ticker symbol VFIFX, which has a 0.015% expense ratio and a minimum investment of a thousand dollars. It's just your normal Target Date fund. If you open up a Roth IRA with Vanguard or you open up a brokerage account with Vanguard, you can go and type in VFIFX and buy the 2050 fund, have a great diversified balanced fund ready to go.

But if you are like Starbucks or some massive corporation who uses Vanguard as the 401k provider, instead of paying the 0.15% expense ratio, you can use the fund VTRLX, which is the institutional class of the Vanguard 2050 fund. The expense ratio is 0.09%, so it's six basis points lower. It's a little bit cheaper, but the minimum as of 2020 was instead of a thousand dollars, the minimum investment was $100 million.

So this is not a fund a normal person or any person really would ever invest in. It's only for institutions like Starbucks or hospital networks or whatever that has hundreds of millions of dollars of investments across all their employees' 401ks. And so that minimum was a $100 million.

And then what happened in 2021 is Vanguard basically announced they were lowering their fees, they're dropping their Target Date fund fee from 0.015% to 0.008%. So they're dropping at seven basis points, which is great. That's kind of Vanguard's thing.

Lower fees, they continued to lower fees, but they also lowered the minimum investment on their institutional class. They lowered it from a $100 million to $5 million, still a very big number that generally most individuals would never buy, but now maybe small and medium businesses could use this to with the lower expense ratio. And in my opinion, when Vanguard did this, they basically [inaudible 00:13:33] up.

And they didn't really think through this side effect of lowering the minimum on the institutional class because what happened is every institution who had between $5 million and a $100 million before was not eligible for the institutional class, like the bulk discount.

But when they made this change, they all became eligible. And I suspect there were some Vanguard sales reps who called their small and medium business customers and said, "Hey, great news you guys. We just lowered the minimum on this institutional class. You can now move your money from this one to the other one." And all the institutional small medium businesses raised their hands up and said, "Hooray, we get to save a few basis points on the expense ratio for all of our employees. That's great."

And what happened was $6 billion left the investor share class and went to the institutional share class. There was this stamped for the exit from the slightly higher expense ratio to the slightly lower expense ratio. And then what happened to cover, basically, Vanguard had to withdraw all the money from the investor share class, transfer it over to the institutional share class, and to get that money out, they had to sell the underlying funds to the tune of $6 billion.

Then at the end of the year, when they're doing their taxes, they're like, "Oh, we had 6 billion of gains and that needs to get by law, that needs to get pasted on to the investors." And that's why we saw this 10% distribution in the share price and that share price drop. And so that's what happened is basically because of the drop in the minimum of the institutional share class.

Crazy. If you look at the flow of funds chart, you can look this up on Morningstar and see how much money is going into this Vanguard Target Date fund. Every year there's like half a billion dollars flowing into this fund just as normal people are more likely to use Target Date funds and index funds and put more money in every year. And then in 2021, just every month there's this flying out, just massive money leaving.

All right, so what's the impact of this?

First of all, it's very important to note that if you are holding a Target Date fund in any flavor of tax advantage account, I'm talking 401k, IRA, 403B, 4037, TSP, probably not because they don't use Vanguard. But any tax event account, Roth traditional, whatever, this whole episode, and sorry I made you way until 16 minutes to tell you this, but this whole episode has zero impact on you.

Because that distribution and hopefully reinvestment, I mean I guess it has your impact as long as you have dividend reinvestment turned on, doesn't create a tax implication because in tax advantage accounts distributions aren't taxed the year they happen. In the Roth flavor of all these accounts, they're never taxed, so it simply doesn't matter and in traditional flavors of these accounts, they're never taxed until you actually withdraw the money.

So it doesn't matter. So on any sort of tax advantage account, this has zero impact. If you hold one of these funds in a taxable account like a regular old brokerage account like I do, then it does have a tax impact for you.

This April, which was, I'm filming this in May or recording this and you're probably listening it to it in I think late June, or late July or something, you hopefully have already seen this and already paid that tax bill and so you basically had to pony up the money for this 10 to 15% distribution on your Target Date fund if it was in a taxable account.

One important note is that you're not necessarily paying more tax total, you're just paying some of the tax on some of the gain sooner. And so maybe if you were planning to hold this Target Date fund for 20 years and you're 10 years into that, you would've to pay it this year instead of 20 years from now.

Also, like I mentioned, when those distributions are paid out, they're reinvested at the current share price, moving your tax basis up, so less taxes will be owed in the future. So that's why you pay more taxes now because it's distribution but less taxes in the future because you now have a higher tax basis.

All things equal, you don't actually pay more taxes, but it does actually create a little bit of what's called a tax drag because, and it all, when you get into these taxes, there's like a million caveats because it depends, did you actually reinvest every dollar and were you able to pay the tax bill from your income? Is your tax rate can be higher in the future or lower in the future? Theoretically, this could actually help your tax situation.

If you were in a very, very low tax bracket now and when you eventually want to sell this fund, you're in a very, very high tax bracket, this could be considered what's called tax gain harvesting, where you realize some of the gain out of taxes to take advantage of your low tax right now, then when you're in the higher tax rate later, you don't pay as much taxes.

That's not really typical. We kind of assume equal tax rates, especially on things like capital gains. But who knows if you're super rich in the future and have high income, maybe this helped you. But if we assume equal tax rates now and later and you have to assume a bunch of other things, like how long you're holding it for when this happened in the tenure of you're holding things like that.

I ran some analyses and I looked at a 20 year timeframe where this happened 10 years in. And under those circumstances with equal tax rates, this represented a 0.07% drag on your total eventual after tax value, which is pretty small.

In fact, it's exactly how much Vanguard just lowered their expense ratio by. And so if you consider that to be a typical average case scenario, then you know, kind of just have to shrug your shoulders and be like, "Well that was weird, but Vanguard made up for it with a low expense ratio."

If you look at the worst kind of reasonable case scenario where you're in a very high tax bracket, you hold for a very long period of time and this happens to right at the beginning of your investing, which is kind of the worst time for it to happen where you pay this big tax bill and then that tax drag impacts you for longer. The worst case scenario without getting absurd and saying you have a 90% tax rate or something, is about 0.22% per year, so it's significant. 0.22% per year that's higher than the entire expense ratio.

That's almost what a Robo advisor might charge you or something like that in terms of their fee. So it's not good, but again, that's kind of the extreme scenario. That's the tax effect account has again, only in taxable accounts and only if you're holding this Vanguard targeted fund, and by the way this happened to Vanguard, this could happen to a Fidelity or Schwab Target Date fund.

It happens more to actively manage funds that are always having these big turnovers. But this was kind of more of a shock because index funds are traditionally considered to be very tax efficient because they're not really selling much each year. They're just kind of holding the same stocks each year in and out. All right, so what should you do about this? Given that this weird thing happened to the Vanguard thing and maybe hit you with a big tax bill, I still like Target Date index funds, they're super simple.

It's one fund that gives you everything they automatically rebalance for you, they automatically reallocate for you. It's kind of hard to mess them up and I think they represent pretty close to optimal investing. When people start getting more tricky than a Target Date fund, in my opinion, it always looks a lot more like speculation rather than optimal investing.

One alternative, if you don't like the idea of potentially being non-tax optimal, would be to do a three fund portfolio. So instead of buying the single Target Date fund, you could basically just buy the underlying funds like buy a US stock market index fund, an international stock market index fund and a bond index fund. If you do that, then you're on the hook for rebalancing. Let's say US has a terrible year, international has a great year, you might want to sell some of your international and buys some of your US of your US to stay your target asset allocation.

You're also on the hook for reallocating. So let's say you're young, 90% stocks and then you're into your forties, fifties, sixties best practice is, you're slowly relocating towards bonds. So when you're 65, 70 retirement age and beyond, you don't want to be in a 90% stock portfolio because if COVID 2026 happens or something, the market drops by 80%, you don't want to see 80% of your portfolio disappear or even 50 or 30%, right?

But one interesting thing about a three fund portfolio like that is if you do the rebalancing and if you do the reallocating, there's tax implications to that too because let's say international had a great year and US had a terrible year, when you sell some of your international and buy some US, you're taxed on those international gains. And so that represents a little bit of this tax bill due in the year and potentially a tax drag.

And when you reallocate, let's say you're currently 90% stock and you want to move to 80% stock, when you sell some of your stock to buy some bonds, that is going to trigger that tax bill and that capital gains. And so what do they say the two certainties in life are death and taxes. There's no fully beating the tax ban here unless you can somehow get everything into a Roth IRA or Roth 401k. So you're still on the hook for that. It's just different.

For me, what am I doing? I've actually struggled this question myself. I don't love the idea of having extra tax drag. The rebalancing stuff doesn't really bother me cause I like this stuff, I know how to do it, but as of now I've left my Target Date fund in there. I still have the a hundred and whatever thousand dollars in my Target Date fund inside of my Vanguard account.

I think I'm going to do that. I think that it's just not worth it to deal with all that other stuff and it's pretty unlikely this is going to happen to Vanguard again, knowing what they know now. Whatever you choose, the important thing to also note is that this isn't a huge deal. The huge deal is what I call following the two rules of personal finance club to build wealth.

Rule number one is spend less money than you make, live below your means. And rule number two is invest early and often, invest the difference. If you're doing those things and you put it all into a Target Date fund, you'll do great. If you do those two things and you put it all into a three-fund portfolio, you'll do great. If you don't do those two things and you spend all your money and never invest in anything, you'll be broke.

And so those of you listeners who are now 24 minutes into the Stay Wealthy podcast with me drawing on about this Target Date index fund situation, you guys are like superstar aficionado, love the epidemics of this. And so I'm sure you're going to consider this, but remember the big picture, this doesn't really matter that much. Okay. Will this happen happening in next year?

Well, after this year, first of all, I don't think Vanguard's going to make this mistake again, but what might happen is just consumer sentiment, knowing that it could happen could cause a mass exodus of consumers who are wanting to cash out of this thing which would cause Vanguard to need to sell and the kind of create a ripple effect of this whole thing. In fact, if you look at the flow into and out of the fund that Morningstar and Y charts provides and some other sites, you can see in a normal year it's positive and 2021, there's actually negative $6 billion.

And in January, March and April it was positive several dozens of millions. But in February of 2022, which might be reflecting January behavior, I'm not sure, but early in 2022 there was a minus $1 billion flow of funds out of these Target Date funds, which I can virtually guarantee was just this reactionary effect by consumer investors who don't want this fund in their taxable account.

And there's like Wall Street Journal articles and a whole bunch of articles that say these aren't appropriate on a taxable account, which I think is a little bit of an oversimplification because there's pros and cons to of course, but there wasn't a negative fund. But if you look year to date, year to date, the flow into the Target Date funds was at least the 2050 fund, which is the example I'm using this in this episode, is actually at plus $87 million.

And I think that the fallout from this has already happened and when we go through the rest of 2022, money will continue to flow into these funds and we probably won't see this type of huge tax bill happen again in 2022. But if you're worried about it, you can sell and get out with your new hire basis and all that good stuff.

One other little fun fact as we wrap up about this Vanguard Target Date fund situation is there's actually a lawsuit currently pending in Pennsylvania courts filed by three investors who saw these huge tax bills and basically are accusing Vanguard of breaching their fiduciary duty by causing this tax bill to hit their investors. And I think they kind of have a point, which is Vanguard kind of messed up by lowering the minimum investment on their institutional class, having this unintended side effect and then basically leaving all their consumer investors out to dry to hook up their small and medium business investors.

I read about that, it just seemed like the latest news I could find out is that it's happening and I haven't heard about the outcome. And so who knows. If you own these funds, I wouldn't be that surprised if you got one of those little class auction lawsuit envelopes in the mail one of these days. And so maybe I can give you guys an update.

Personally, I think it was an honest mistake by Vanguard. I don't think that they were trying to dick over their consumer investors. I just think they were, someone in the boardroom had a great idea to lower minimums and lower expense ratios and no one remembered to speak up about what was maybe in hindsight a pretty obvious side effect.

But that's what happened. But who knows, maybe some class action lawyers can cash in and we will continue to cheer our capitalistic economy. All right, that's it. That is the deep dive into the Vanguard Target Date fund. If you listen that whole thing, by the way, way to go, that was kind of a pretty niche little thing, but still super interesting and I think it has implications about how mutual funds share price and dividends interact with each other in general and how index funds work and so way to go.

All right, that is it for Target Date funds.

Now let's go to our questions from the listeners. Our first question comes from Katie from Maui.

Katie: If you make dividends from your brokerage account, do you have to claim those on your taxes if you just reinvest them?

Jeremy Schneider: Thank you, Katie, I hope you're enjoying Hawaii. I'm very jealous you're there. And what a topical question, and it must be topical because I chose the question, but she's asking, "Hey, wait a minute, if I didn't actually take that cash out and spend this big dividend or any dividend I get in my taxable brokerage account and I have that setting turned on inside of my brokerage account that says automatically reinvest those dividends..."

So functionally you're never even seeing cash at all. The dividend pays out, then instantly buys more shares and it again affects the share price and number of shares you own. But in terms of you, the end investor, cash never enters your hot little hand there. Do you still have the tax in it? And the answer is, yeah, you do.

Unfortunately. It's a nice feature offered by those brokerages to keep them invested as much as possible to avoid any cash drag on your investment growth.

But as far as the US government's concerned, that dividend was paid out, it's going to show up on your 1099 DIV that you get from your brokerage and you're going to have to submit it as part of your taxes. And if you don't, you are committing tax evasion or tax fraud of some sort. So yeah, this whole Vanguard thing we talked about, and in fact any dividend you get inside of a taxable brokerage count, you owe taxes that year even if you're reinvesting it. How sad?

Our next question comes from Connor from Narragansett, Rhode Island. I hope I pronounced that right. Connor, what's your question?

Connor: What does wealthy mean to you? Obviously, someone that's worked in corporate America and sold a couple businesses. I'm curious if you think today you're technically considering yourself wealthy. This is something I obviously have goals of becoming someday both through index funds and through multifamily investment properties. But curious to hear your take.

Jeremy Schneider: Thank you, Connor. Well, we went from a super technical, nitty gritty episode to a very cerebral question to end with, and this is the Stay Wealthy podcast. And Connor's asking, what does wealthy mean to me?

And it's actually a really good question because I think a lot of us live our lives chasing more money. We think just over the next hill of wealth, that's where happiness is like if you are broke and living paycheck to paycheck, you think, Man, if I could just have enough to know where, get out of the pay to paycheck to paycheck cycle and know that I've got groceries, then I'll be happy.

Then once you get there, you're like, oh man, if I could just buy a small start kind of, then I'd be happy. Then once you get there, you think, oh man, if I could just get a nicer car, then I'd be happy. And then once you get there, wherever you are, there's always that next best level.

If you're making half a million dollars a year and you've got two cars, two nice cars parked the nice car garage, you think, oh man, if I could just be a member of that next country club or get a place on the water or buy a vacation at home, or there's always a next level of wealth. And in my opinion, happiness is never around that next corner.

And so to answer kind's question, do I think I'm wealthy? And I think I would love to say, yes, I do. And the reason is because I am content. I think I have enough. I'm comfortable, I have a perfectly nice place. I drive a 2016 Mazda CX5. It's perfectly fine. I have a two-bedroom condo here in beautiful, sunny San Diego.

I think it's fine. And not say I don't have ambition in life, but my ambitions are more about helping people out in the world and finding happiness for myself, not about chasing more stuff. You could look at the other extreme end of the spectrum and say, look at someone in Africa or any country who lives in poverty who could have food and be food secure, they think that's wealthy.

And so wealthy isn't about selling multiple companies, and I've only actually sold one company, but I've started many companies and they've all been pretty successful. So I'm extraordinarily lucky, but that's not what wealthy is. Wealthy is just about having enough and being content and being happy in life. And so in your wealth-building journey and wealth, financial wealth can certainly give you options and can allow you to do what you love all day.

I do where I help people with money instead of having to slave away a job I hate, but that alone doesn't buy happiness. And so when you are on your wealth building journey, I think it's important to remember that the next level of stuff is not going to make you happy.

Happiness has got to come from deciding you have enough, having contentment and then being happy with your relationships, the people around you, what you're doing with your time, what your direction of life, ambition, all that stuff. And so money can only buy so much. And so great question Connor.

I love talking and thinking about stuff because I think at the end of the day, as much as we love nerding about the academics, this is all about happiness. That we're all trying to be happy and make our family happy and friends happy and things like that.

And so if we lose sight of that and we just try to get more zeros in our bank account, we're probably going to not live a very happy life. And so part of money is really understanding why we're doing this. Thank you so much for the great question. That is all I have for you today.

For those links and resources mentioned in the show, head to youstaywealthy.com/159.

Thank you as always for bearing with me while I fill in for Taylor and I'll leave you with my two rules of building wealth. Rule number one is live below your means and rule number two, invest early and often. See you next week.

Episode Disclaimer: This podcast is for informational and entertainment purposes only and should not be relied upon as a basis for investment decisions. This podcast is not engaged in rendering legal, financial, or other professional services.