Most important take away

The stock market’s strong run (S&P 500 up 32% over the past year, ~30% since the start of 2025) is not detached from reality. It’s being driven by accelerating fundamentals: Q1 2026 earnings grew 25% year-over-year (45% for tech, 54% for communication services), and forward P/E ratios have actually fallen even as prices climbed. Earnings, not geopolitics, are the dominant driver of current market action.

Summary

This episode of Ask The Compound delivers actionable investment and tax-planning insights through listener questions.

Stocks and investments mentioned:

• S&P 500 (large caps): up 32% over the past year, 86% over three years, 320% over 10 years (~15.5% annualized). Since 1975, the S&P 500 has returned 12.5% annualized ($10,000 in 1975 = $4.2 million today). The trailing 12-month return of ~31% ranks in the 88th percentile of rolling one-year returns since 1975.
• Technology and communication services sectors (Meta, Google, Amazon highlighted): earnings growth of 45-54% year-over-year; net profit margins ~20-30%.
• VTI (Vanguard Total US) and VXUS (Vanguard ex-US): discussed for asset location of foreign holdings.
• Applied Materials (AMAT): bought at $4, now $440 with $700K in capital gains. The stock has had drawdowns of 86% (dot-com/GFC), 50% (2022), and 43% (Liberation Day) — a reminder that concentrated single-stock positions carry massive downside.
• Intel: referenced as a cautionary tale of concentrated positions that did not work out.

Actionable insights suggested:

1. Don’t fight the market when fundamentals support it. The market is tracking earnings growth (six consecutive quarters of double-digit YoY growth). The forward P/E has fallen even as prices rose — a sign of margin of safety, not detachment.
2. Be skeptical of “consumption tax / VAT” doom predictions for Roth accounts. The hosts argue a national VAT is politically implausible in the US; diversifying tax base (mix of Roth and traditional) is the practical hedge rather than abandoning the Roth.
3. Foreign tax credit and asset location (VXUS in taxable vs. tax-advantaged): The optimization exists but is small (foreign tax credit averages ~7% of foreign taxes paid; only ~60% of VXUS dividends are qualified). Conclusion: 50/50 split across accounts is fine — don’t get paralyzed.
4. 529 front-loading: The hosts (especially Bill) endorse aggressively funding 529 plans early (up to $50K target) to maximize tax-free compounding. Excess flexibility can be retained via a taxable brokerage account. Note: up to $35K per beneficiary can now be rolled to a Roth IRA. Average families pay roughly half of sticker tuition.
5. Small business / family business retirement accounts: After maxing Roth IRA ($7,000), add a SEP IRA (up to ~$72,000, ~18% of income, but must fund for employees too) or solo 401(k). Also fund an HSA ($4,400/year for individuals with HDHP) — triple tax advantage. New 538 “Trump accounts” launching July 2026 for kids.
6. Concentrated single-stock position strategies (Applied Materials example): Realize a large chunk of gains early in the tax year (Jan/Feb) to allow 11 months of tax-loss harvesting via long/short direct indexing strategies. Other tools: gifting to children/grandchildren (no step-up in basis without death), charitable contributions via donor-advised funds, variable forward prepay contracts (sell at future date with optionality), and exchange funds (7-year lockup, gives diversification). Big takeaway: “If you won the game, stop playing” — don’t let the tax tail wag the dog; trim concentrated positions.

Chapter Summaries

1. Intro and book giveaway — Ben promotes his new book “Risk and Reward” and offers 10 signed copies to listeners who send questions in the next 10 days.
2. Is the market detached from reality? — Earnings growth of 25%+ (45-54% in tech/comms), falling forward P/E, six consecutive quarters of double-digit earnings growth. The market is following fundamentals, not detaching.
3. How rare is the past year’s ~31% return? — In the 88th percentile since 1975. 40%+ one-year gains have happened 22 times; the best was 61% in the early 1980s.
4. Is a VAT/consumption tax coming and does it kill the Roth? — Politically very unlikely; would face huge resistance. A traditional account isn’t a hedge since you’d still pay income tax plus VAT. Best move is tax diversification.
5. Foreign tax credit and VXUS location — Minor benefit; ~7% average credit on foreign taxes, 60% qualified dividend ratio on VXUS. Don’t overthink — 50/50 across accounts is fine.
6. 529 front-loading vs. taxable flexibility — Strong endorsement of front-loading 529s to maximize tax-free compounding; supplement with taxable brokerage for flexibility. Up to $35K Roth rollover per beneficiary.
7. Best retirement accounts for a small-business employee — Roth IRA, then SEP IRA or solo 401(k), HSA, and the new 538 “Trump accounts” for kids.
8. Selling a massive Applied Materials position (100x gain) — Multi-strategy approach: realize gains early in tax year, gift to children/grandchildren, donate appreciated shares, variable forward prepay, tax-loss harvesting via long/short, or exchange funds.
9. Sign-off — Reminder to send in questions for the book giveaway.