What is the Catholic view of investing? Is it moral to have our money make money? And practically speaking, where should Catholics look to invest in today’s market?
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• Simple Wealth Planning
• The Reformed Financial Advisor Podcast
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Transcript:
Eric Sammons:
What is the Catholic view of investing? Is there certain areas that a Catholic should invest in? Is it even moral to invest? We’re going to talk about those topics today on Crisis Point. Hello, I’m Eric Sammons, your host and the editor chief of Crisis Magazine. I want to encourage everybody first to subscribe and like the channel wherever you listen to it, wherever you watch it. Also follow us on all the different social media platforms at crisis mag. I’d also request if you could, we’re talking about money today. So if you have any extras, you can donate to Crisis Magazine, just go to crisismagazine.com/support.
Let’s go ahead and get started. Today our guest is Andrew Flattery. He is a certified financial planner and owner of Simple Wealth Planning in North Kansas City, Missouri. He’s a creator and host of The Reformed Financial Advisor Podcast, and a member of the Catholic Financial Planners Network. Welcome to the program, Andy.
Andrew Flattery:
Eric, it’s a real pleasure to be here. The Crisis Point Podcast has become one of my favorite podcasts and it’s sort of like, you’re my voice of reason and the guy that provides practical tips for me on how I can deal with the clown world. So really appreciate you having me on.
Eric Sammons:
Good. That’s great. I appreciate you saying that. My first question has to be, so you’re Catholic but your podcast is called The Reformed Financial Advisor Podcast. What are you? A Calvinist or something?
Andrew Flattery:
You are the only person that’s going to challenge me on this. There’s someone that I have a kinship with named Josh Brown, who’s a guy on Wall Street and he’s on Twitter and he’s probably got the biggest financial advisor podcasting. He’s the reformed broker. And the schick was that he was a stock broker in a boiler room years ago and saw the light. And now he’s the reform broker and my schick is sort of like, yes, the stock brokers were wrong. The boiler rooms were wrong. That’s not how you treat people, but there’s also a lot to be critiqued about just sort of like traditional financial advice in general, where like the financial planner down the street, the RA down the street, there’s things you can critique about that advice as well, too. So I’m the reformed financial advisor, but I’m definitely a devout Catholic Eric. So I appreciate you calling me out on that.
Eric Sammons:
Exactly. I want to make sure you weren’t like sliding something going into Calvinism or something like that. But yes, so Andy is Catholic, so we can’t talk about Catholic stuff here. Now the first thing I want to do is just ask at a very high level. So a lot of people who watch or listen to this podcast know I have some kids who go to Franciscan University of Steubenville. And recently they had a debate on campus. My daughter’s actually the president of the debate club, they had debate where the question was, is it moral for Catholics to invest in the stock market?
And I asked her, I said, are people really actually debating this? She said, “Oh yeah, there’s definitely a lot of people doing that.” So I think we should just start with that. Is it moral for Catholics, maybe not even specifically just the stock market, but just investing in general, is that something Catholics can do or is that somehow violating maybe the old rules against usury or something like that?
Andrew Flattery:
And props to your daughter for initiating that dialogue. Because I don’t know about you, but I get a lot of questions about this. And I think, I don’t know if it’s like a conservative thing, I’m a conservative and we sort of like to rage about the modern world. So maybe this is one of the things that we conservatives like to rage about, but I think, maybe the best place to start is just from first principles or like foundational ideas about what investing is and what service it provides to society. One of the stories I like to tell, or one of the ideas I like to think about is that classic essay that a lot of people have heard about called I, Pencil from the 1950s. And you’ve probably heard this story, even if you’ve never read the essay, but it’s this short essay of a pencil telling the story of its existence.
So like how this pencil came to be. And it’s like the G.K. Chesterton quote. We lack wonder but we do not lack wonders. So we lack wonder, but we don’t lack wonders. Because if you think about it, if something is pedestrian as a pencil is actually a pretty amazing thing that we can acquire something like this for under a dollar at the local general store, when really, as the essay points out, there’s actually nobody that knows how to make a pencil. There’s not one person that knows how to make this little device that consists of wood, graphite, a piece of metal, those little pink things that we used to as an eraser, maybe a stamp.
And the essay goes into like, let’s talk about the wood, for example. Well, you need a logging industry. You need someone to cut down the trees. You’re going to require someone to create the saws and someone to create the heavy machinery, the trucks to get the trees out of the forest. You’re going to need a factory to manufacture the rubber that makes those, that goes on the trucks and so on and so forth. And the reality is even something like the logging industry requires hundreds and even thousands of actors to make that possible. And dare I say, hundreds of thousands of investors to basically allocate the capital to those specific businesses.
And so the long and the short of it is Eric, if you and I, well, I don’t know about you, maybe you do know how, but if I tried to create a pencil and I tried to YouTube it and like cut down the tree, finish the wood and like try to concoct some sort of rubber eraser, it would take me months. It would take me a ton of time and money. And the reality is I would have a worse version of the pencil than something I could buy for 50 cents.
And so, the essay doesn’t point this out explicitly, but the way that I think about investing in this sense is that at every step along the way, you need capital allocators that are designating resources to this various entities in the appropriate proportion and in the reasonable proportion. And that’s where individual actors making these small investments is a really important thing. And so just, if you like energy, if you like warming your house, my wife’s an oncology nurse, if you have ever had someone get cancer treatment, if you like listening to the Crisis Point Podcast, well, each one of these products and solutions that we enjoy having in our modern world requires capital. And the investors are the ones that allocate that capital. And so that’s kind of how I would start the conversation.
Eric Sammons:
And I think I, Pencil is a classic because it really does show what goes into making something so simple. It’s a great use as a pencil, because that’s something all of us can just pick up for, like you said, less than dollar at the store, but we could never make it ourselves. Not in the sense that, not as good as we have them for, I mean, to take a lot of work through it. And it’s because each individual industry, like you’re saying, we’re putting capital into it because somebody decided, okay, I can support my family by start a logging company. Another person said, okay, I can help, I can support my family or I can make a profit by starting a graphite company. Another one, wherever you use to make the eraser. And then somebody said, I can make money by putting all this together, by actually creating a pencil from all these resources that I’m getting from other people.
And so that all comes together. But in every single case, people are investing in every single one of those companies, it might be the person just investing in their own company. And that’s where I think that’s a good example where people, nobody seems to have a problem with investing in your own company. Like if I say I want to start up a company and I’m going to put my own capital into it, my own time, sweat and my money into it, I don’t think any Catholic would say something’s wrong with that. In fact, they’d probably encourage it. But if I say, okay, I’m going to give my neighbor $10,000 to help him start his company and then I’ll share in the profits of that, most people will be like, okay, that seems okay. But then you take a step to, okay, I’m going to give, I’m going to pay a hundred dollars for a stock in this P&G or IBM or something like that. Then all of a sudden, somehow that seems to be not as legitimate.
And I think some of it has to do with, I know some of the arguments are against that you’re not working for it. I guess when you’re giving your neighbor $10,000, you’re not working for that either. If let’s say you’re a silent investor, not involved in it. So what is the morality? Is there any moral problems that you can see with this idea of you put your money to work so your money is making money without passive investing is what we’re really talking about, or without you doing anything. I know some people have argued that that’s basically usury or some form of it. So how would you argue against that?
Andrew Flattery:
I mean, that’s so interesting. And I don’t know about you, I’ve only been hearing these arguments, really just in the last couple of years, because-
Eric Sammons:
Me too.
Andrew Flattery:
Me kind of talking about I, Pencil, that seems sort of obvious, but let me take a crack at it. So like you said, we can all understand the idea. In fact, maybe this is the place you should start, like investing in your own business or investing in a business in your local community. I don’t think anyone has a problem with that, but let’s talk about the broader sense of investing or the investing with the general public, deals with today with things like the IRA or the 401(k), for example. Well, for starters, anytime you put your hard earned capital to work in an enterprise, you are putting your capital to risk.
So of course, you have the chance of that capital of losing your principle entirely. And so it makes sense that if that business is successful, you should see a return on your investment. We can use logic and reason to come to that conclusion. And also there is something worthwhile about the idea of having a low time preference. So if you are willing to not consume today so that you can invest in an enterprise that may or may not pan out, and you actually will never receive any benefit from that for maybe years down the road, maybe five, ten, 20 years in some instances. Well, it makes sense that having that patience, having that low time preference, if done correctly and done prudently should result in some sort of return.
And so, I don’t see any problem with it because you are taking the risk, you are having the low time preference to wait for this enterprise to come to fruition. So to me, not only do I think it’s not a moral, I think it’s a very good thing. We want these sort of actors in our world that are providing useful products and services for us.
Eric Sammons:
Right. Because the time preference issue, I think is a big one when it comes to investing and understanding. And I know a lot of debates about usury in the Catholic world revolve around this too. I think it’s a misunderstanding of time preference, because as you’re saying, so I give $10,000 to my neighbor to start a business. Well, that’s $10,000 I had I no longer have access to. And not only do I not have access to it, like you said, I could lose every dime of it. I’m putting at risk, but I’m also saying I’m willing to part with that for now when I could buy something right now. And with inflation, of course, we add inflation to the mix, that $10,000 in a year, in five years, 10 years is actually worth less than $10,000. If somebody said, if I said to my neighbor, or I’m sorry, if my neighbor said to me, hey, give me $10,000 and I promise in 10 years, I’ll give you your $10,000 back. Who would take that?
Nobody would because first of all, inflation, but also time preference, I could do something else with that $10,000 now that I couldn’t. And so waiting 10 years to just get that back doesn’t make any sense. So there’s the risk involved and the fact that your money made money in that situation, I think it’s just a reflection of the whole time preference issue you mentioned. So I think, we could go really down deep into that whole situation, but I know another big argument that Catholics and this one I think has a lot more weight to it, in my opinion. Modern Catholics have with like investing in the stock market is, a lot of these companies don’t do good things with their money.
I mean, even a company as… I live in Cincinnati and so P&G, Proctor & Gamble is the big one for us, their headquarters are here. I know people who work there, stuff like that. They do a lot of stuff like for example, pushing the gay agenda and stuff like that. Even a kind of Midwestern company like that. We’re not even talking about the more extreme, like obviously invest in Playboy or Planned Parenthood, we’re talking about just Proctor & Gamble. As a company, they’re using their profits at times to support things that are a contrary to Catholic faith. What would you say to a Catholic about investing in stock market who is worried about that situation? About giving their money to companies that are doing terrible things like that?
Andrew Flattery:
I mean, I saw you said something on Twitter about just Disney, right? I don’t know about you, I don’t want to own shares in Disney right now. That’s just not something that I want to put my capital to work with for. And so, I don’t know, I think we can use our best judgment and we can use our formation to try to parse the good from the bad, because there’s a lot of problems with a lot of these large businesses that we would want to potentially invest in. And so I would say maybe that’s part of it. Maybe it’s just the idea is that you want to buy things that you believe in and you want to not buy the things that you don’t believe in and use your best judgment to make that call.
But I also don’t, I also, I don’t know, I’m not a theologian, but I wonder how much moral culpability there is if you’re like unclear about what’s happening at some sort of conglomerate like that, or if you’re unclear about the 3% allocation to your index fund that is in maybe a business like Disney that we wouldn’t want to put money in because of Fiat inflation, we’re sort of pushed in to some of these products that we don’t understand. We sort of have to do this to some extent to preserve our purchasing power. So I don’t know that there would be a lot of moral culpability, but just, me as a regular guy, the way that I sort of answer that question is just through stock picking. Like me personally, this is sort of a radical thing and financial advice, but I still like to pick stocks.
I like to follow other investors that are still old school stock pickers. And to me, that allows me to have more of my hands on the business, to have an idea of who the owners and the operators are. And if I see something I don’t like, I just won’t buy the company, I’ll screen of my portfolio. So that’s been sort of like the everyman way that I’ve handled it.
Eric Sammons:
And that, it’s interesting because back after my first job in the nineties, we had a 401(k) plan. And then when I left it, I rolled it over to an IRA and it was just some type of fund, some mutual fund, I can’t remember what it was, but some mutual fund. Well, I would get the reports on a regular basis, like the quarterly reports, whatever. And I noticed all of a sudden they started investing in Playboy. And so I wrote to them and I said, hey, I don’t think you should. I’m an investor. I’m this mutual. I had a tiny little bit, but I’m like, hey, might as well. I am one of their investors. I said, I want you to pull out a Playboy and they wrote back and just give a standard response. No, we think it’s good, technically, whatever.
So at that moment, I said, I’m never going, personally, I was like, I’m never getting a mutual fund again. And what I do is I did stock picking as well. And like for me, I’m no expert or anything like that, I picked some ones that were like just safe and just held them forever. But then sometimes every once I found out those companies, they do some bad stuff. And so the morality of it, I do think there’s some, I don’t necessarily know if it’s a sin always, especially if you’re not aware of it, you’ve done your due diligence, but you’re not aware of it, obviously that wouldn’t be a sin. But I do think there is that issue. And I think one way to get around that is simply don’t invest in those companies. Don’t invest in mutual funds, which does make it more difficult because who can spend the time who’s not professional like you in knowing which these stocks are?
And I want to also bring up, I want to talk, you brought up the whole idea that we’re getting forced into this investment because of fiat inflation. I want to talk about that in a minute, but let me take a step back for a second and say, there’s a lot of criticisms among Catholics about capitalism. And they say, what capitalism does, there’s this idea that there’s like a third way, a Catholic way there’s socialism, which yes, that’s terrible. And there’s, I’m sorry, capitalism, which in some circles, capitalism is considered just as terrible. And they say to prove that point, look at our world right now. And we do have a lot of corruption. We have a lot of cases of big companies, private companies who are doing terrible things like with big tech and media and all these companies who are really pushing agendas. And they’re almost arms of the government who are still being private.
We have this idea that money is the most important thing. And there’s a destruction of small towns, of local towns, stuff like that. And that’s all put at the feet of capitalism. Now I’m assuming you would probably argue for capitalism. And if that’s the case, how would you argue from a Catholic perspective why capitalism isn’t to blame here, or if it is to blame, why it’s still the best play or whatever. What’s your defense of capitalism in general?
Andrew Flattery:
I mean, I think with all these things, we always need to define our terms because certainly as I pointed out with this I, Pencil idea, in its purest form, of course, I think capitalism is the thing that gets pencils in my pocket. And or another way of saying this is like the free markets or like the voluntary economy. And the way that I think about it is the idea that private property is a very important thing and I should be able to use my private property for those things that provide for my family and those things that I think are worthwhile for society.
And so that’s what I think capitalism is. And I think one of the things that I like to critique with the modern economy is something like the monetary system where money itself is planned from the top down level. And so here in the modern ages, we have like central banks or in the US, we have the federal reserve, which is a sort of central bank. And that’s actually the opposite of capitalism, that’s not capitalism. That’s not a free market at all. It’s actually, maybe the most important unit of exchange in our economy is not a free market, but it’s in fact, it’s central actors that are closely aligned with the government making these choices. And so I think I would agree probably with a lot of these critics that are critiquing capitalism in a lot of ways. But I think what I would say is a lot of the problems come from the central planning of the money, whereas they might say it’s capitalism. And that’s how I would parse through that.
Eric Sammons:
And I think that that’s a great point that you make about the terms. I found that I normally will say, I support the free market rather than capitalism, because the term free market’s just a little easier to find, basically we’re just advocating for a voluntary exchange of goods between people, that we’re not forcing anybody to buy anything or sell anything they don’t want to, we’re not forcing anybody to do anything, we’re just letting people freely choose what they do with their own capital.
Whereas capitalism, as it’s being used today, typically what they mean is the American economic system. But I would say, I would argue, I’d remind people that the most government regulated place on earth, or at least in America is Wall Street. I mean, they’re controlled completely what they can and can’t do. And like you said, the money itself that we have is controlled from the top down. There’s no free market when it comes to money, a true free market would include, hey, you can use whatever you want for money if people will accept it.
If I say to you, hey, I’ll give you a cow if you give me maybe, if you build a barn for me and you want to do that, there’s nothing wrong with that. That’s totally, of course, a barter system. But if I say I got these shells from the beach, I’ll pay you in those. And you say, yeah, I’ll take that, as long as you’re voluntarily accepting it and I’m voluntarily giving it, there’s no reason with that. But what happens is now we have to use dollars. We absolutely have to pay our tax in dollars, but we basically have to use dollars in places that sell things have to accept dollars no matter what the inflation does with it.
So I really think that’s a great point though, that what we have, I usually call it crony capitalism just to suggest that, listen, this isn’t exactly pure capitalism that we’re living under. You worry start sound like the people say, well, it’s not really socialism or something like that. But I think that’s definitely part of it. Now we move to, let’s talk then about like, actually…
Now first of all, before we move to this part about investing, I don’t know what the official disclaimer should be, but this is not financial advice, this is our opinion, so you do your own research listener and decide for yourself. And, Andy is a professional, but he’s not sitting down with you for a professional session here, he’s just giving his own opinions about these things. But you mentioned about how fiat inflation is forcing us to things like the stock market. What do you mean by that when you say that?
Andrew Flattery:
So the big red pill that I had on this actually came from a Catholic. So there’s a Catholic economist, his name’s Guido Hülsmann, Eric, I’m sure you’ve heard of him. I think he sits on like the Vaticans Pontifical Academy for life or something like that. But he is a student of a 14th century French Bishop named Nicolas Oresme. And at the time, centuries ago, this Bishop Nicolas Oresme was critiquing the medieval princess inflating the money. And so in those days it was things like clipping the coins where you would confiscate the coin with your stamp on it, and you would clip them, you would clip the edges and send them back into circulation, or you would melt them down and put base metals into the coins so they weren’t as pure of gold as they used to be.
And this causes inflation because essentially what you’re doing is these princess were creating wealth for themselves by skimming a little bit off of the top. And so this is more on, in fact, in Guido Hülsmann book, The Ethics of Money Production, he actually says inflation is worse than usury. And Oresme thought that inflation was a greater sin than usury.
And so I actually have a quote here that Eric, if you don’t mind, I want to read from Hülsmann and it’s quote Oresme, again, this is the 14th century French Bishop, Oresme argued that counterfeiting, and here counterfeiting, we can think of as inflation, he’s using these terms interchangeably, the princess inflating the money are counterfeiting the money, was a far more serious moral offense than the sins that are most frequently associated with the use of money, namely, money changing and usury. Money changing and usury might be tolerable under certain special circumstances. But counterfeiting was inherently unjust and therefore never permissible. Alterations of legal-tender money were “quite specially against nature.” And they’re far more worse than usury because usury, at least, springs from the voluntary agreement between a debtor and a creditor, whereas alterations are done without such an agreement.
So that’s from Guido Hülsmann. And so the point is, if we just had money that we could save, like in the case of the middle ages, maybe it was like the floor and the gold flooring, the coins that you would literally haul around on your person, you could literally just save money and there would be no requirement for you to speculate in something like the stock market to just preserve your purchasing power. And so by preserve your purchasing power, I mean, be able to buy a similar amount of a basket of goods today that you were able to buy a year ago with the same money, which is not the case with fiat money, where, essentially the money that we save in our bank accounts today are a melting ice cube.
So that’s what I’m referring to with inflation. Really over the last a hundred years, we’ve had fiat inflationary environment here in the United States. And this has been amplified by a couple different things, by the exit of the gold standard in the 1970s. And then in particular, even in the last couple of years, the debt that’s been brought into our economy today by essentially the money printing mechanism has even caused even more inflation. So I think this trend that we’ve seen for decades now, I think people are starting to wake up to it, because they’ve just seen it with the money that they’re saving in the last couple of years. And so that’s what I’m referring to.
So what do you do? So Eric, as you started talking about, the rational thing to do then is, of course, to not hold money at all, and you should get rid of it as soon as possible. And so you might want to buy something, you might want to buy goods, or you might want to invest because, of course, investments tend to keep up with inflation time, especially like something like the stock market. It used to be the bond market, would even keep up with inflation, but actually that has broken now, and that’s not the case anymore. Or something like real goods like gold, silver, or nogging Bitcoin are things that like rationally speaking, people are putting their money in because, frankly, they have to look for alternatives to saving money.
And so, on the one hand I love this idea of investing, but I’m not super jazzed about everyone being forced to do it. Like my deceased grandmother who was the farmer during The Great Depression where they lost the farm, she would’ve thought it insane that now everyone is required to invest in the stock market. She was the little lady that had cash underneath her mattress when she died. And so that’s what I mean, we’re sort of forced into these things that we wouldn’t normally do. That’s not to say there’s anything wrong with anybody individually doing it, but it seems unjust that everyone is required to do it.
Eric Sammons:
Right. I think that’s a great point, is that, it’s unjust that people are required to do it. For example, my mother, who’s a widow now and she’s elderly and I help take care of her money for her. She’s always, it’s kind of funny, but she often complains about the fact that the money she has in the checking account, however, in the bank, even her money market account, it makes something like 0.01% interest or something like that. And she’s just like, “This is nothing.” And I tell her, I said, I know, and she wants to know like, “Eric, can we, can we make some more money?”
And I’m always like, well, to be honest at your age, I try to be delicate about that, but you don’t want to be anything too risky. Anything that’s going to be too high of a return is probably going to be too risky for you because of the fact that you have a shorter timeframe, again, try to say it delicately. But at the same time though, I’m thinking, but you’re losing money, you’re literally, your money you’re losing money by having it in the bank, because if inflation officially is like, what is it? 7.9%, which is just a farce. It’s clearly over 10 at this point.
Andrew Flattery:
I agree.
Eric Sammons:
And so if the value of your money is going down by that much, and you’re only making 0.1% or 0.0 whatever, then you’re clearly losing money. So it’s forcing people like that to think about investing, which is, that’s really where I think the injustice is because somebody like my mom, who my dad was super good with money, as far as, very conservative with it always didn’t spend a lot, saved his money, stuff like that, but saved it in these traditional vehicles, like a savings account or something like that. And so he did all the right things and then it’s just not going to work out.
And I also think, I was going to say is that, I don’t think people realize how it should be normal that you should be able to keep your money under your bed, for example, and 10 years later, it should buy you the same amount that it bought you when you put it under. Of course, we think that’s crazy now, but that really is actually the normal, a good economy, a healthy economy, you could do that. It would be worth the same now. So I think, like my opinion is I want to run this by you as a professional and tell me what you think about this. I think with this high inflation, that the smart thing to do with your money, like you said, you don’t want to hold on to money because it’s disappearing in front of you.
I feel like the best thing to do is invest in real assets because those things will keep their value the best. By real assets, I mean, things like real estate, precious metals, like you mentioned Bitcoin, I’m not going to get into the whole Bitcoin debate on this podcast, I’ve talked about before, but we’re just going to assume for the purpose of this podcast that Bitcoin is a real asset, so just deal with it listeners. But things like that, because it seems to me that those things would hold value, whereas even a stock, like even a company may or may not, definitely buying something’s not, like buying a car that’s, although cars lately have been crazy in their values, but buying something that depreciates like that isn’t as smart. So what say you as the professional to that type of attitude?
Andrew Flattery:
I agree. The classic inflation hedge is real goods. And so now you’re seeing like all the commodity bulls come out, whereas the commodity bulls during the last decade have been, they’ve been yelling at nobody because a lot of these things have just been out of favor for a very long time. So I think there’s good reason to think that like real goods, which are like the one asset class that hasn’t done anything over the last, really since 2008 financial crisis, are probably have a good risk to return trade off right now.
And so, for example, like in our client portfolios, whereas we used to have like a bond allocation for clients, we’ve taken out a slice of that bond allocation and we’ve allocated it towards gold and silver, which of course has plenty of volatility to it. So it’s not a perfect solution for grandma, for example, but gold is one of those assets that it’s very hard to create more of it. It has a low stock to flow. And so this is one of these things where, during these inflationary environments, you do see like real goods do well. And look at my house. The house that I own today gets worse every year, but the value of it keeps going up exponentially, which makes absolutely no sense whatsoever.
And the reason for that is like, what you just pointed out is of course, inflation. There’s other reasons too, right? It’s because of regulations and local zoning laws and stuff like maybe there’s just not enough supply, but actually, the rational thing to do if we are going to continue to have inflation, I think we probably will, is actually, of course, it’s always a good thing to have a paid off house, but technically speaking, like having a mortgage to own a home is actually a pretty good trade-off with rates being really low and inflation going sort of nuts, that’s a pretty good trade. Even though your house gets worse every year, the value of it is going to go up.
And so, it’s not something that I’m advising everyone to do. I work with a lot of young Catholic families that get excited about paying off the house, and I think having a paid off house provides a lot of financial freedom. It can allow you to live more simply and more easily on one income. So I think that’s a good solution. But on the other hand, it is a conversation right now. Maybe you have a mortgage in a hyper… Not a hyper, but just a normal sort of inflationary environment, because frankly that’s what the US government’s doing. They’re not paying off the debt, in fact, they’re taking on more debt and they’re attempting to sort of inflate the debt away. That’s probably what I’m going to be seeing throughout the rest of my lifetime.
So that’s sort of the other thing, I agree with you. I think you buy, you look at real goods right now and you look at these places that are sort of benefiting from the debt based economy, which is real estate, even certain stocks will benefit from that where you can essentially borrow money close to zero and invest in businesses that are essentially achieving a spread above that. So I think there’s probably some stocks that will do okay. But I agree with you in general.
Eric Sammons:
The other nice thing about real assets is typically they don’t have the moral baggage as much. If you have gold, it doesn’t have the moral baggage is like investing in maybe a mutual fund that also invests, one of their companies is Playboy or something like that. So that’s nice about it too. The mortgage issue is an interesting one because for most of my adult life, I have been very much as anti debt as anybody can imagine. And the idea of owning my home outright was like the number one financial priority for me. And I advise my kids the same thing. But I will admit that in the past, maybe two or three years, I started to change my opinion about that because of what you just said, the inflationary environment, the fact is money is super cheap right now.
And so if you get a, let’s say you just get a mortgage on a $100,000 house right now, let’s say it’s a $100,000 mortgage. Well, in 30 years, that a $100,000 is a lot less, it’s worth a lot less and yet you got it now instead of, and you could pay it off over time. So really, and especially with interest rates being 4%, something like that, if inflation’s 7%, that actually works out in your favor a lot in that situation. And so I’m less adamant about paying off the house as well, just because of this environment we’re in. Now I would say, I assume you’d agree with this. Like prudentially, no matter what your loan to value ratio shouldn’t be crazy.
And also compared to what you make, if you’re making $50,000 a year as a family, you don’t get $500,000 house, with a 450 or $475,000 mortgage on it. If you can get away, you don’t do that because all it has to happen is your specific area, the values of real estate goes down and you’re underwater and now you got lots of problems. So obviously, I would think that, agreed?
Andrew Flattery:
A hundred percent. I mean, so even with the rates being low, the sort of perverse incentive is you’re going to try to squeeze yourself into the biggest house possible because maybe that’s possible with rates being low. But with prudence, I think that’s probably unwise. You should still look to follow. My advice is always borrow less than what the bank will lend. There’s some rules of thumb, like keep your payments under 20% of your gross income. And if you want to be something like a single family household, you should look at one income, instead of two incomes. Or something like three times your income is the most you should ever look to borrow.
And oftentimes if you do that, it’s going to be less than the bank will lend, whereas the incentive or the FOMO reaction right now is to try to borrow as much as you can to quick squeeze yourself into the biggest house possible before inflation makes that not a possibility. And I think you can pump the brakes on that if you’re trying to be prudent about it.
Eric Sammons:
So are you a fan of Dave Ramsey?
Andrew Flattery:
Of course. I think Dave Ramsey’s great. And I know Kennedy Hall brought him up on one of your prior podcasts. It’s sort of become like a cottage industry in the financial advice space to like critique Dave Ramsey and to pull cords into what he’s doing. But I think in general, the idea that he motivates people to take ownership of their money and to be intentional about what they’re doing, and he has a right to be skeptical of debt.
However, I think, especially in the inflationary environment, it does make sense. And you brought up usury. I have a young family, I’ve got two kids and one on the way, and frankly, it just fits, like it’s nice for us to be able to have a house right now, even though I bought the house when I was single and I wouldn’t have been able to buy the home without borrowing that money. And so to me, it’s actually just that the bank is charging me a rate of interest because I value that house today more than I value it by waiting a couple of decades to finally save up the money and own it free and clear. And so I love Dave Ramsey, I think he does great work, but still, that’s kind of how I feel about this whole paying off the mortgage thing right now.
Eric Sammons:
And also to make sure something’s clear, I’m personally, at least adamantly against consumer debt. So only debt on real assets like a mortgage on a house, not credit card debt to go on a vacation or something like that. To me, that’s an athema. I just don’t see any financial prudence in that. I think that even starts going immoral territory, depending on how much somebody would abuse that.
Andrew Flattery:
Agreed.
Eric Sammons:
So I said, we’re going to talk about a lot, but I do want to talk about Bitcoin at least a little bit. Because I can’t have a financial economic just on my podcast without some discussion of Bitcoin.
Andrew Flattery:
Amen.
Eric Sammons:
So I can tell, I would guess, what’s your official thing? You’re a certified financial planner. How many certified financial planners would you guess are pro Bitcoin? Just percentage wise ballpark.
Andrew Flattery:
It’s probably under 20% and it’s gone up as the price has gone up and Bitcoin has achieved a level of credibility in like traditional finance. So like fidelity, like good old fidelity. One of the largest financial institution is now an advocate of Bitcoin, but it’s still very low for a number of reasons, but I am heretic in that sense.
Eric Sammons:
Now, do you recommend Bitcoin actually to your clients?
Andrew Flattery:
I do. I do with all the caveats. So I recommend Bitcoin to clients. We view it, not so much as an inflation hedge in that Wall Street’s just going to think it’s like gold right now. I don’t think that’s where Bitcoin is at, but essentially, we view it as like what could potentially become the base money of the future. And so it’s essentially an invention that solves some of these problems that we’re talking about, where the princess are allowed to clip the coins right now, whereas with Bitcoin, that’s impossible.
Eric Sammons:
So what are the caveats that you tell clients when you are talking about Bitcoin?
Andrew Flattery:
And so I think the first step with Bitcoin is obviously you just have to educate yourself and you have to come to a certain level of conviction. And so with my view, there’s a lot of reasons to be skeptical about markets right now. There’s a lot of, people that are my age have like never really seen a bear market. And so my view is the answer to that is you have to own things that you’re optimistic about over the long run, because it’s chance that we could be in a pretty bad way in conventional markets in the near future. And so, with something like Bitcoin, the way to handle that, the way to handle the volatility is that you’re long term optimistic about that buy and hold.
And so I tell all of my clients, I can try to educate you, I can try to help you understand like, why we’re owning this in portfolios, but of course, at the end of the day, it’s your money. And if you don’t have conviction about it, that’s totally understandable. In fact, Andy Flattery does not have all the answers, I’m trying to do the best that I can. And I think I’m coming from this from a good place, but that’s how I think about it. And so where we’re at today, we kind of view Bitcoin as the alternative bucket. And so I’m like, the convention for those financial planners that are talking about it, the way they handle it is like you should have a 1% allocation.
And the way that I think about that is it’s not really, it’s not a bad idea. You probably should have a 1% allocation. However, I think that’s a bit of a cop out because it’s like saying if it works out, I want to be able to say I recommended it. However, if it doesn’t work out, it’s no skin off my nose as someone that’s recommending it. And so I like to have a little bit of skin in the game.
So anyway, we have anywhere from a 5% to a maybe a 20% allocation right off the bat, depending on your level of conviction, you could maybe have a higher allocation than that. And then I think the way to think about it is maybe just don’t do like a traditional rebalancing strategy with something like this, where, so with Bitcoin, it is goes in fits and spurts. So if it does end up working out really well, what you want to be able to benefit from that short period of time where it has sort of exponential growth. And so what I would say with that is maybe you don’t do some quantitative systematic rebalancing with something like that. You just benefit from these like short fits and spurts, where it appreciates. What do you think, Eric?
Eric Sammons:
Hey, I’m not the financial planner. I mean, I’ve been a big Bitcoin advocate for years since 2013. And I do think, I mean, I remember hearing somebody say the 1% rule, and I think for somebody, the argument was essentially this, if you put 1% of your worth into Bitcoin and it goes to zero, it’s not going to materially affect your life. We’re talking about people who have money to invest by the way, we’re not talking about somebody who’s struggling paycheck to paycheck, something like that. But if Bitcoin does what I think you and I both think it’s going to do, that 1% will make a material difference in your life if it goes up, because it won’t be 1% of your portfolio anymore.
And so I think that’s the reason why. Now you could say that almost about anything though. You could say about Beanie Babies, you could say about whatever, but I think for me, at least, Bitcoin has proven itself because of the fact that it addresses all the problems we were talking about before, like you said, that it’s actually a alternative to fiat currency and the problems that are happening there. The whole thing we’re talking about how it’s not a free market of money. Well, here’s a free market of money. I do think there are definitely concerns with the fact that the governments are very much working on the On-Ramps and the Off-Ramps. Like I heard in Europe, they were trying to pass along European Union where your hardware wallet, which is for those who aren’t real up on this stuff, it’s where you hold your Bitcoin that’s not at any third party. You actually hold it in a device. This is like not the technical terms, but we’ll just use them anyway, on of your own, almost like it’s in your hands, so to speak.
But they’re making where if you send from that to like an exchange, then the exchange is required to ask you exactly all the financial information, the KYC, the know your customer, the name, the address, the social of the person who owns that hardware wallet.
Well, the whole point of hardware wallet was nobody knows what’s in there or anything like that, but that would give it all away. So I am concerned about that. The ability for Bitcoin to overcome that over long term, I think it will, but I think those are challenges for it, definitely. It’s funny for years, I would just tell people, I’m not telling you what to do with your money. And I remember my sister got all mad at me when Bitcoin went up high. She was like, “Why didn’t you tell me to invest?” I’m like, I wrote a book about it. You should have just figured out on your own.
So it’s like, people have to do what they can. But I think I personally would go, I go higher than 1% myself, but I understand the reasoning behind the 1% advice rule, because I do think it’s something that it has the legitimate potential, not the guarantee, but the legitimate potential to go up exponentially. And there’s very few things you can say, you can’t say about P&G. You can’t say that about gold. You can’t say that about even real estate has certain caps on what, because people just can’t afford after a while, I mean. Whereas Bitcoin, there’s almost no ceiling to it like there is with everything else. So that’s why I’m putting a little bit into it, but like you said, know what you’re doing, understand it, have conviction.
Andrew Flattery:
The other consideration there is, of course, depending on who you are is going to be a useful decision, be useful kind of part of like how you’re going to allocate this. So like in the case of your mother, your mother’s never going to work again. She is probably living on her savings right now. And so obviously, that allocation is going to be a lot less than somebody that, like it’s their first job out of college. They’ve got some extra money to save and invest, where someone like that could have a really high allocation because the ultimate goal for someone that’s just starting out is to have a decent amount of wealth that they can provide for their family and their generations with.
And so obviously, someone like that can have a very high allocation when they’re just getting started because they can keep making more money, which is a nice thing to have when you are owning something like Bitcoin, which is extremely volatile because when it goes down, you might want to buy some more.
Eric Sammons:
It’s funny you say that because my mom, she was always begging me to, she wanted to own some Bitcoin because she knew, of course, I had talked about it. She seen my book and everything. So finally I got a little bit for on an exchange and so she can actually tell her friend she owns Bitcoin. I think it’s like a $100 worth or something like that. But she could say she owns Bitcoin now. But I have told her this multiple times though, like it just is not wise for you in your situation to own, even though I believe in Bitcoin long term, I know like three years from now, it could be worth 10% of what it is now.
And for somebody in that situation who might have like serious medical bills or nursing home bills, whatever the case may be in that timeframe can’t risk that. But like you said, somebody just getting out of college. I mean you could, you have a higher risk factor at that point.
Andrew Flattery:
Well, I mean, you bring up my traditional finance background. So I’ve worked in finance since 2010. And so that means like I have had to rewire my Kansei in thinking on a lot of things. And so I was later to come to Bitcoin than a lot of people like you were. Because like a lot of people, I was a skeptic for a very long time. I thought of it as like too good to be true or sort of thought about it just like this speculative frenzy and everyone was just obsessed with the number grow up. But there was not like a lot of meat on the bone. And a couple things really changed my mind on that.
Well, Eric, you did. I remember you saying something like I’m interested in the cryptocurrencies that are specifically looking to fix money itself. And so I thought that was an interesting way of framing it, because like in this whole cryptocurrency ecosystem, there’s like a lot of different messages, but I thought that was interesting that you said that.
And then I also discovered the HODLers, which are essentially the Bitcoin holders that are, HODL stands for hold on for dear life and they’re treating it as like a savings technology. So they’re not trying to trade it. They’re not trying to like make a leverage bet when it’s low and so that they can sell it at the top and like make it huge killing, which is what you’ve see in a lot of this space. In fact, they’re just literally buying it and they’re stacking it like it’s gold and they’re safe.
And so when I discovered that there’s like a percentage of this market where the HODLing exists and some people call it the, what do they call it? The buyers of last resort, essentially, no one’s ever going to bail out Bitcoin. And so what you need is you need these buyers of last resort, the people that will never sell and the people that will buy when we have these wipe outs. And so when I discovered that actually is a large part of the Bitcoin ethos, it really excited me because I think it kind of, in theory, it could get us back to this idea of like saving good money and then investing can become more of like an intentional thing for certain people that have an expertise in their unique areas.
Eric Sammons:
And I think that’s something, an argument from like a Catholic perspective about for Bitcoin is that our current fiat system is quite literally geared for consumerism. The whole point of Keynesian economics is spin, spin, spin. And that to me is antithetical to Catholicism, which is much more based upon that you’re prudent, you support your family, you support those around you, support your community, you give to those in need.
And so you have to be financially more conservative, more reserved. You’re not going out and buying yachts and things like that. Whereas Bitcoin, the way it’s made, it encourages you to save and saving is a good thing for any economy. And so that saving is also very good even for a micro level, for a family, that if there’s a problem down the road, you can support… When your kids get sick with something and your health insurance didn’t cover, you have some money for it.
Where are the case, maybe it’s like a family member loses their job, you can help support your family, maybe your brother-in-law, something like that. Obviously helping the poor, all those things, by saving the money, you’re in a financially strong position that you can help those in need. Whereas if you’re going out and spending it on vacations and shoes and all that stuff, but that’s exactly what they want you to do, I don’t see how that’s Catholic. So I think that’ll be my pitch for big point for Catholics right there.
But I want to ask one last question, we just run out of time here. I just want, give me what you foresee just generally over the next five to 10 years with the economy. Because I know a lot of Catholics, a lot of non-Catholics, everybody very worried. The future looks bleak to a lot of people and I admit it looks bleak to me. I just want to hear from your perspective, because you’re much more in tune with what’s going on in the economy. What do you see as the most likely scenarios happening in the next five to 10 years?
Andrew Flattery:
I was really impacted by a guy named Chris Mayer who wrote a book called 100 Baggers, which was really impactful on me. And the way that Chris Mayer handles this. The book, 100 Baggers, he goes through the history of the stock market and all of the 100x returns that have happened in the stock market by people owning individual businesses through a long period of time. And essentially they turn a dollar into a 100 over many years and he starts to tell the story of like, who are these businesses and how is this possible in these certain businesses. I have a friend who experienced this with Warren Buffet. My friend Ryan O’Connor here in Kansas City grew up in Omaha and his grandfather was a friend of Warren Buffet in the 1950s, and he was an early investor in Buffet. And he invested his life savings in Buffet’s fund. He held it over many decades through various, the 1970s of stagflation, 2008 financial crisis.
And he became very wealthy and he sent something like over 60 to 70 grandchildren to Catholic University with the profits that he earned in his Berkshire Hathaway shares. And so I tell that story not to pitch Berkshire Hathaway or something like that. And of course, Warren Buffet has his own issues, but to point out that what Chris Meir points out is like, I don’t try to be a macro economist. I don’t try to figure out how the machinations of the federal reserve are going to impact commodity prices in Russia, because I don’t think I am suited to do that. There are plenty of people out there that are doing that, that I follow.
And so the way that I handle that is on the micro level, I work on my own business and I like to invest in individual businesses and make the owner operators deal with the macro environment. And so that’s how I handle it. And so in the case of Berkshire Hathaway, if you were worried about the stagflation of the 1970s, if you were worried about the big spending of the 1980s under Reagan or the fact that Bill Clinton was the president in the 1990s, right? You might have been someone that wanted to sell their stocks if you didn’t like Bill Clinton. Of course that’s what a lot of folks do is they sell their stocks when they don’t like the president.
However, if you bet on somebody that you believe in, like in the case of my buddy, Ryan O’Connor, Warren buffet, you let Buffet deal with that by owning his businesses. And so I do that with the businesses that I own. I invest in owner operators and I want to let the founders of these businesses deal with that macro environment and how they allocate capital in their own businesses. And then you hold the stock and you deal with it come what may.
So Bitcoin’s another example of that too, but I think that’s how I like to handle it in the stock market. Other than that, I still think having diversification is useful. We talked about things like gold and silver, like those will do really well in a deflationary, sorry, a inflationary environment and then having of course a little bit of cash works really well too, because in a debt-based Fiat economy, you do have these deflationary busts where you get asset prices that spiral, and you might want to buy things cheaply. And so that’s sort of how I handle that question as opposed to trying to being like the macro guy.
Eric Sammons:
So essentially what you’re doing is you’re putting your money with people you trust or at least institutions, or in the case of Bitcoin, a computer program. But you’re basically just saying that and like you trust that they are going to be able to navigate in their own little sphere whatever’s going on in the big sphere.
Andrew Flattery:
I mean, like Elon Musk, he’s kind of a cronyist, right? I’ve been skeptical of Elon Musk, but he also does some things that I like. Sometimes he says some things on Twitter, I’m like, oh, okay, maybe this guy gets it. And so I don’t invest in Tesla. I don’t exactly know everything about Elon Musk, but I’m sort of skeptical of him. But let’s say that you like Elon Musk, like you know something about him and you believe in what he’s doing, you’re a fan of the technology that Tesla is promoting, well, maybe you buy shares in his business because that’s the richest man in the world and he’s got most of his net worth in that stock.
So essentially the way that you handle that is you invest in someone that has skin in the game and then you let Elon figure out the macro environment, which his case means that he’s sort of an innovator, but he’s sort of a cronyist. So I think there’s some problems with that, but there might be somebody listening to this that’s a fan of Elon.
Eric Sammons:
Right. Exactly. Well, I think we’re going to wrap it up there. I appreciate this and hopefully it was helpful for our listeners, just thinking about these subjects as a Catholic, because I think a lot of times as Catholics, we might go to some financial person and we don’t necessarily trust that they’re going to have a Catholic perspective. That’s why I wanted to bring you on. So I really appreciate that. And I will put a link to your website on there. I know, I think you only work with people in your area though. Correct?
Andrew Flattery:
No. With the miracle of technology, I work with people all over.
Eric Sammons:
Good.
Andrew Flattery:
And so that’s sort of a beautiful thing that this has allowed me to do with the podcast and the internet is I work with people all over.
Eric Sammons:
Okay good. Well, I’ll definitely put a link to it. And of course the reform, not Calvinist reform, The Reformed Financial Advisor Podcast. I also put a link to that to make sure people can listen to. I was a guest on it a few months ago, so I highly recommend it. Thanks Andy. I appreciate it. Until next time, everybody. God love you.
Andrew Flattery:
Thanks Eric.
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