5 Things Millionaires DON'T Invest In!

five things that millionaires don't invest in it's brian preston the money guy yeah brian i'm super excited about this show because oftentimes what we are telling you guys is what you should do with your money how you should make financial decisions where you should put it if you follow the financial order of operations but we were talking in our show meetings this past week we said you know we ought to talk about what are some things that maybe get a lot of press and a lot of attention and a lot of uh you know people selling it people a lot of folks like pushing it out there that maybe you should avoid if you want to set yourself up for financial success there's a lot of i want you to think if we go through these these five items i want you to think about the number of folks that make their living selling these products i mean because that's really what's going on and i think there's a direct correlation to size of salesforce to how awesome the product actually is you know um because if it sells itself you don't need it i don't need a huge sales force you know you need to kind of nudge them into activities so that's probably a great segue into number one which is permanent life insurance now i think this is a very important one to like because i can already like i can feel people's blood pressure rising remember the thing that we're going to be talking about today is five things that millionaires are five things that wealthy successful people do not invest in don't don't mishear us say that we don't like life insurance and we don't think that life insurance is useful but we recognize that folks who understand money and understand finances well they use life insurance they do not invest in life insurance that's the key thing we're we're big proponents of people having life insurance we want you to have disability insurance life insurance umbrella insurance loaded up with all the protections that you need to make sure that your family is protected just in case the unthinkable actually happens um and that's probably yeah look we say 10 times your income in term life insurance add on any outstanding debts and you're usually in a pretty good place but a lot of people we know you probably have a relative or somebody you go to church with or a friend down the street a neighbor that is constantly trying to nudge you towards some life insurances and investments that's right so let's let's kind of talk about this the first question i would have because any investment is what can i expect this thing to return well good news is we don't have to be the bad guys so for all you life insurance agents out there getting ready to sharpen your troll pencils we're not the bad guys consumer reports actually went out there and tried to figure out what's the typical rate of return that people who invest in whole life insurance get on their investments within the life insurance it's one and a half percent one and a half percent is the average annual rate of return on whole life insurance and this is what i think is so funny why do people even think about wanting to invest in life insurance because what we all hope is that we pay for life insurance and we never use it most of us are hoping that when we buy life insurance it's not something that ever actually pays out because fortunately if a life insurance policy does not pay out it means that we survived it means that we outlive the term which is a good thing and so i think the financial world often figures out okay how can i play on something to sell people something maybe they might not think of otherwise say you know all these term folks they pay for this life insurance for 20 years 30 years and then the insurance goes away so they're just throwing away that money it's just wasted something they never actually got any use out of well let's come up with a way for us to actually give them some of that money back come up with a way for them to invest to grow it and so we're going to spin up this thing that's going to allow them to do that but when you actually pull back the curtain and look at what that thing does on average on average it returns about a percent and a half annually well i think and it's good to talk a little bit about the concept of what permanent versus term insurance is is look you know when you're a younger person that buys permanent insurance you're overpaying that's right for the cost of the insurance because a portion of that money is being what's perceived as investing so that as you get older and the insurance costs more that investment's going to cover that's right the the additional premium that's that's how it's pitched to you so yes you are being you are overpaying but that's because this is permanent it's not going away insurance is of course going to cost a lot more money when you're older this is going to be the bridge that covers it so we want to kind of talk about let's compare term insurance whole life insurance and see what they actually cost because i think it's important to know what are you really paying for and what is the actual cost to it and the thing that we really want insurance to do is we want to be there if something happens to us prematurely right so none of us are arguing that insurance is necessary specifically life insurance if you have those that are dependent upon you so then the question becomes uh what's the most cost effective what's the most efficient what's the best way to get that coverage in place and exactly we said we laid out how much does term cost versus how much does whole life cost so we took a a very healthy male person and this is a this is a male that's in excellent physical condition because we wanted to make sure we were giving the best foot forward on how low premiums can be on a 1 million dollar 20-year policy and guess what we found 25 year old look at that bo it was less than 31 for that protection on a monthly basis so if i were talking to a 25 year old person and i said hey you need a million dollars of coverage to make sure that you provide for you and your spouse and your family and i'm going to give you two options you can either pay 31 for that million dollars of coverage or for the exact same million dollars of coverage you can pay 688 dollars which would they probably choose that's a big deal let's talk about a 30 year old now i thought the numbers kind of worked out interestingly because it still says that a 30 year old is 31 now we asked daniel what's going on how is the 25 year old the same price as a 30 year old here's what he clarified the 25 year old was like 30 30 and 81 cents the 25 year old was the 30 year old was actually like 31.25 so it was cheaper or more expensive but it's um but look at the difference but look at look at the difference on the whole life it's unbelievable it gets because we all know this uh as we age the fact of the matter is it is more likely no it's not more likely as we age it is 100 certain that we are closer to death right that's just the way that this life works so the closer we get the more likely it is that a policy will have to pay so the more expensive the coverage becomes so both of these coverage get more expensive but they don't get more expensive in the same proportion so a 30 year old 827 for whole life 31 for term on a monthly basis for a 35 year old it's 34 a month for the term life insurance which is insurance only for whole life it's a little over a thousand dollars a month and then for a 40 year old it's 50 a month for that million dollars of coverage for whole life it's 1289 a month so again the thing that we want you to keep in mind is what you're buying is a product to protect you against a certain type of risk and that type of risk is you exiting the game early even the 40 year old if you can buy that million dollars of coverage and pay 50 a month or you can buy that million dollars of coverage and pay almost thirteen hundred dollars a month our opinion is it makes a lot more sense to get the same amount of coverage for the much much much lower cost that term life insurance provides well first of all i think we have to ask ourselves is it okay that insurance goes away i mean that that is ultimately you have to ask yourself is it okay because that's that's what you're going to be pitched on the term is that you're going to be throwing money away it goes away nobody ever calls those policies in because you just don't die with it well i will tell you there's a simple answer here what your hope is is that what you're ensuring is that you die prematurely that that risk actually goes away and how does that risk go away the way the risk goes away is that you self-insure you actually build financial independence you have the kids out of the house you pay off all your debt you've saved up enough money to be fully you know retire without any worry of where you're going to come up with any additional money that is the whole purpose of graduating from insurance at all is that you can self-insure so that is actually what the goal is you know what makes that goal so much easier is when instead of costing yourself as a 25 year old 688 a month you're only paying 31 a month because then you can have 650 dollars that you're investing right investing in assets that make more than one and a half percent and they actually build your army of dollars so you can self-insure sooner and easier that's why super successful people don't do a lot of permanent life insurance and look i always get the uh the insurance salesman come at me and they say yeah but you're just throwing that term money away you're just throwing that to our money away that's a good thing i'm okay throwing money away if it means that i'm surviving and outliving the term because just like you said i know that in the background my army of dollar bills is working and i'm going to rapidly work towards a point where i just don't need life insurance anymore now look there will be people i've i've actually recommended permanent insurance for somebody who had big estate issues back when those those were problems where ex-state exemptions were like a million dollars and there's also if you if you are worried about health issues make sure you get a term policy it does give you some protection if you ever have health underwriting issues or if that's a concern with your family history so just take into account those things you know we can't unfortunately we don't know each of you individually so we always have to give the disclaimer that there are unique circumstances but i think for a lot of folks out there you're going to find that that term insurance policy where you actually buy the prem by the policy that covers the risk that you're worried about right now that goes away in the future this will serve you well i love it love it love it number two this one is man this one hits close to home literally it hits really close to home cds i mean and look i grew up in a house this is what we did i think that we ought to clarify uh because i recognize this we were having this conversation with our content team that when we say cds in my generation that could have meant two things uh it could compact disk or it could have meant certificates of deposit and what i recognize is that for the younger generation coming by they don't know what either one of those things are they've neither heard of uh compact disks nor have they heard of certificates deposit obviously here we are talking about uh a depository institution that will allow you to invest cash and they'll pay you an interest rate so that when at that at the conclusion of the term you've gotten your interest and you get your principal back that could have been a great slot instead of daniel's like older christmas decorations but it is interesting and the fact that i mean a certificate of deposit i think this thing is somewhat old-school it is and the reason it is old school is that when i was growing up i don't even think you had you didn't have access because there was no internet so you didn't have online savings banks that primarily boosted their fdic protected savings accounts where they pretty much matched what the cds was doing and that's kind of where we are with interest rates is that you just do not get much of a premium for locking your money up for a long time with the banks and and that look it's sad that cash doesn't generate hardly anything right now but but in recent memory it was doing decent like i mean as as recent as a couple years ago you're a high yield money market you pay like two and a half percent i mean that's not going on right now today but that was going on you know in the last two or three years yeah but i would caution people here's here's one thing about cds that bothers me if you go out because you know you get paid more the longer you go out on the duration but who wants to lock in for five to seven years on a cd where we are currently with interest rates and that's where we are because if we ever got into a recovery or rise of interest rates you'll be pretty sad that you're locked in on that long-term interest rate but there's more and this is the point i wanted to make about wealth creation and those of us that don't come from families that have wealth is that we don't realize the mental block we have to the big risk which is the opportunity cost of the situation and this is what i grew up in is that you know really a tell of two tells of i look at my wife's family and i look at my family growing up my parents had no idea how to invest in the stock market the financial markets that was just not something you did that was something that that fancy that was the other people did yeah so well me folks where you saved your money was cds and then i think about my my father-in-law who you know still very similar to my parents i mean they they didn't make a ton of money but hard-working and but they invested in the fidelity magellan fund and the difference of that simple decision is tremendous i mean there is a material impact of somebody who thinks their long-term investment is cds or cash versus somebody who lets that army of dollar bills actually work just as hard as you do with your back your hands and and your brains yeah i think one of the interesting things with cds is the siren song used to be again this is a little bit of an older thing now it used to be the safety of it it's a guaranteed interest it's a guaranteed rate of return well oftentimes we fail to realize the things that we think are safe actually have a lot more risk than we recognize when you factor in the opportunity cost and we did a little case study to kind of illustrate that like if you look at the dollars of saving versus investing and the time period we picked was about the same time period that both your parents as well as your in-laws yeah we're investing right and so we said okay let's take both of them and let's just take a 50 000 portfolio and have one of them invest in the fidelity magellan fund from 1985 through the year 2000 and have one of them just by one year cd so every year just by a new one-year cd that's going to pay a guaranteed fixed rate of interest well when we actually look at the results the cd investor they still made money over that what's that 15-year period that 50 thousand dollars turned into about 118 000 so it more than doubled however for the for the individual that understood investing and understood uh the risk premium and understood letting your army of dollar bills work for you their same fifty thousand dollars invested over the exact same time period turned into almost eight hundred and thirty six thousand dollars and here's the thing this is where i'm counting on my inflation trolls to crawl out of your bridge and jump out on this is is that i think the fallacy of somebody who doesn't understand money or it comes from doesn't come from a family with money is my parents would probably look at that 50 turning into 118 as a win that's great not understanding that the purchasing power of that money if anything it kept up or lost purchasing power because of the the just the the detrimental impact of inflation whereas putting your money to work your army of dollar bills not only fights inflation but it creates wealth and that's the biggest thing that i tell people be very careful because this i'll tell you another thing i see bo and this isn't in our show notes but i see it from us doing 401k presentations it is not uncommon you go do i think about when i was on a school board and the teachers and in in the four or three b's and a lot of the teachers would choose the stable value fund you know i'm talking 25 year old teachers or 30 year old teachers like man i don't want to take any risk so i'm just going to buy the stable value guaranteed interest rate yeah because it's guaranteed and i won't lose any money that makes me happy meanwhile they can't touch the money until they're over 60 anyway and if you can't touch the money for 25 to 30 years guys i'm going to tell you get excited about innovation get excited about what's going on with technology you can be a part of the success of the economic expansion and growth of the world if you just will do it versus if you just want to be safe i'm telling you you're taking more risk as that 25 and 30 year old who's sitting on the sidelines thinking hey this is good that i can never lose yes you're losing out on a lot so don't get caught up in that mentality there's um there's a lot there you need to unpack to make sure you understand what creates success in the long term and it's so interesting i i i'd like to say that we're uh so strategic we put these in a specific order and yeah that that's what we did but as we're talking about cds being the reason that people often buy them is because they're afraid yeah and i think the financial market has recognized that man if i can if i can play on people's fear perhaps we can sell them things perhaps we can get them to make decisions and that's what we think the third thing that wealthy affluent millionaires do not invest in is fear products yeah because look there's a high cost to that safety we know we talk about the efficient frontier and guys here just to give you some basic understanding you know in the basic component of investing the more risk you take the expected payoff is higher i mean you see this with real estate you see this with businesses you see this with investing in financial markets the more risk you take you better get a premium for taking that that risk well on the other side there are products that say we're going to do the exact opposite we're not going to try to get you a premium for the risk you're taking we're actually going to take out all risk risk whatsoever but you have to understand there is a high cost to that as well and that's kind of what we want to talk about because there's there's two fear products that came quick to mind when we were doing this show preparation the first one look we've been talking about this since 2010 2011. i can't remember when but gold gold yep now gold is one of those things you can touch it it's shiny it's pretty um it's something that makes you you know this has always been the long-term holder value when people are panicking warren buffett has done so many discussions on gold where you could fill up a stadium you could look at it and go admire this big mountain of gold that's in the baseball stadium but you come back 10 years later you go look at it and there's not it's not like it's grown it's not like it innovated it's not like it creates income or rent it's actually you probably had to pay rent to hold it and house it in this stadium it's still going to be the shiny nugget of mountain of gold that you left it there 10 years earlier well we kind of we want to talk about what happens and i've been doing this since was this 2010 i think i mean look how scary that was you're talking about that fear uh this is uh we were doing youtube before it was cool to do youtube back then and i think it's awesome and look i mean we actually instead of using it like we have a tv back here behind me now well but we put it on the screen i think we're just sitting at uh my desk and that's like my computer screen i'd say we've come a long way since then but even though our show and the appearance has changed the advice that we give is still not changed even a decade ago and i mean how many things have happened the last decade when we think about changes in administration and eurozone crisis and pandemics and all the things that have happened and yet the advice has not changed i feel like the time that i most often see gold promoted the time that i most often see people really really pushing it are when folks are scared yeah i think it's uh well everyone says oh well look at what the price of gold is done they are normally saying that in the midst of uncertainty in the middle of a time when things are not going according to plan so we actually we put together the numbers to see what has gold done over an extended period of time and we did it 40 years yep and if you look at this it is kind of amazing because we took an ounce of gold which is five hundred and ninety four dollars right underneath 595 bucks in 1980 and it's pretty exciting i mean if you look at what it did over the next 40 years it grew to 1876 so so again if you're triple if you're over that money i i had 600 then and now i have almost 1900 that sounds pretty good you're like okay great my money grew gold was a good investment gold made me money gold was a prudent thing for me to invest in but that's only if you don't know the rest of the story yeah because the s p 500 500 biggest companies the united states and it changes by the way you know this is it's not static because we know things are changing as times evolve i mean we know like last year tesla got added to the s p 500 this thing's always getting updated but look at this 595 dollars if you just bought into the s p 500 in 1980 it would now be worth 60 to over 62 000 now that makes that 1876 seem teeny tiny yeah so what'd we say it was almost like three to four times that money turned over and yet with the s p 500 the opportunity cost had you elected to invest in gold your money would not have turned over 105 times a lot of times we talk about risk we talk about the risks that we see we don't often talk about the risk that we can't see which is the opportunity cost of what we're doing with our army of dollar bills well i'm betting on humankind if you want to know what what how can you guys feel so certain that markets because man that looks like that over that 40-year period that looks like it was a great time to be an investor how about was that a one-off are we done after that 40-year period guys i'm telling you i'm investing i'm betting on humankind because we keep expanding we keep and by the way it's accelerating i want you to understand we always as humans think very linear we thinking hey eight percent this year nine percent you know in those type of terms i'm talking about exponential innovation you once again i'm going to repeat it have an opportunity to be a part of that expansion the problem when you buy fear products you don't get all that you're basically when you buy gold you get a shiny piece of metal that you probably have to pay somebody to keep safe it's not going to innovate it's not going to create income you have to worry about those things and that leads to the next opportunity cost because this says this takes everything positive i'm telling you about mankind investing in innovation investing in this market and it kind of tries to make you feel like you're getting all of those negatives that gold has this next product fixes it that's right with these equity indexed annuities because here's what they tell you i'm going to tell you the sales pitch is they're like man wouldn't you like to invest in the innovation the ever-growing economy of the financial markets without the risk so i want you to have the opportunity to make the money but you have no risk of lose i remember back brian we started working together back in 2008 we had a conversation around this has to have been the easiest product in the world to sell because i i still remember do you remember the ratchet thing but it came it's like a rack down you know you make money but it can't go back down that's that's like a ratcheted up return and so when you talk to someone who has recently come through the dot-com bubble bursting or has recently come through the great recession or has recently come through a pandemic downturn you start saying hey you know how painful that was maybe you were misallocated you had your risk in the wrong place that painful fall that you had what if i could take that away for you what if i could completely inoculate you from that and i have one product you can buy that will give you the upside but not make you have to suffer any of the downside it sounds too good to be true well that's because look once again i explained there is always if somebody tells you they have a product that's going to take the risk out of things there's going to be a high premium on that safety that's the only way they can do it they're either going to restrict your access meaning they can control your behavior by not letting you touch your money for 10 years while they go and invest it by the way what do you think these people who are harbingers of i'm going to keep your money safe what are you after you give them the money what do you think they do with it have you ever asked yourself that question yeah they go and invest they do exactly diversify you could do this yourself but they're going to give you the premium of being safe the peace of mind that comes with it meanwhile they're going to go put it out in the financial markets make what the financial markets make pay you what they've told you they'd pay you and pocket the difference that's really how this works so when we talk about equity index annuities i want to talk about the concept of the only way they can offer you that premium of the ratchet where it go only goes up keeps going up but never goes down is that you have to give up something that's right and here's what you give up they cap what you make in the good years so they might it's very common that you will typically see the cap somewhere up to like seven percent so in those years where the financial markets make twenty percent you make seven percent i mean that's how they do it they get to keep that extra rate of return but that still sounds good because you're like i'm not greedy that's right if i can make seven percent every year who cares if they're keeping the excess because at least i got to get my seven percent rate of return in most of those years and so what we want to do is kind of walk through a very simplified example now there are a lot of things we're not even factoring in here we're not factoring in fees we know that these things are expensive we're not factoring in commissions we're not factoring in participation rates which they say okay i'm going to cap it but you only get 50 percent withdrawal surrender periods and other things all kind of things that we're not we just want to talk about the basic concept to make it as simple as possible so you could see if they could if it was just as easy as i never can lose meaning in down markets i don't lose but in good markets i get everything up to seven i don't get anything over seven what what does that actually look like and so let's assume you bought one of these products in 1990 and you were able to select i just wanted to invest in the spf s p 500 by the way even that i don't know if you've looked at these products recently it's even complicated how you select the investments do i want an s p month to month product do i want an s p year to year product do i want a different days they don't make it easy but again we're over simplifying this illustration to show you a picture and this is what the picture is in the white or the silver right there you can see the s p 500 from 1990 all the way through 220 like an ekg it does there's there's ups and there's downs and there's ups and there's downs and some of the downs even go negative they drop below zero they go into the negative territory and then you have your equity index annuity which is depicted by the rs and you can see it's kind of like a little stair step and it never goes down it only stays positive or sometimes it'll go to zero but it never actually goes negative so if you were to ask two investors hey take your money take your retirement take your army of dollar bills which one of these two would you rather have and if i was an annuity salesman i said hey i want to draw your attention to the 2000s in the early part or or the 2008 or or maybe they're in like 2018. i want to draw your attention there when you look at these two what you'd rather have and i think their answer might be i don't know that that orange one feels a little safer yeah it just feels like it always makes money i don't really have to worry about losing i'm going to make money and i'm not greedy so seven percent sounds pretty dag i'm good to me here's the problem guys when you stack this up over that 30-year period of investing and think about that's how long we're typically a saver for retirement you're saving for 30 to 40 years so this could be over your savings career you know to build up financial assets for retirement the equity index annuity is going to be under five percent not take into account fees commissions or any of that stuff this is just the concept of doing a mathematical calculation of the concept while the s p 500 during that same 30 year period was over 10 percent that spread that doubling is huge for wealth building so that's that's the part i want you to know there is a an extreme cost an extreme premium for what you feel like is safety but there's actually a lot of cost to your army of dollar bills when you when you go for those fear-based products now again one of the things i love brian is that we've been doing the show long enough you get to kind of go fact check us if you want you can go out and listen to podcasts dating back to 2006 you can go watch videos uh dating back for the past couple of years out on youtube so we actually did a full episode if you want to do a deep dive on annuities and it was called the harsh truth about annuity so you can go to youtube and just type in youtube harsh truth about annuities or go to moneyguy.com and type that in if you want a deeper dive where we kind of dive into this even more go check out that show it's out there and available and you'll see that the advice the counsel the guidance does not change as it relates to those types of products yeah it might make you feel good in the short term your long long-term self will not love the results so keep that in mind yep let's talk about number four this is the fourth thing that wealthy people do not invest in because they understand it use assets yeah this one i think is such a common misconception and so arbitrarily thrown around incorrectly right so i'll have a friend and they're thinking about buying their first home and they're like give me all these reasons why uh they can go do a hundred percent financing and even though they're they don't they're not following my 25 rule and even though they're not following the rules of thumbs it's okay for them to stretch a little bit farther because they say to me it's an investment going to buy this it's an investment there's not any more land real estate only goes up it's an investment i'm also amazed at how people now look we're going to talk about cars because i think that's the one it's not the latte effect it's the car effect it really is blowing up people's retirements but i will i will pick on fi you know primary residence and the fact that i'm a little sad from some of you who watch and then post comments on youtube as you say because when we do incremental analysis meaning that you have the same dollars but you're doing one thing with this dollar versus this with this one dollar and what the long-term ramifications of that one incremental decision the difference between those two and you guys always in the comments go nobody saves money you might as well might as well put it in the house because otherwise they're gonna go blow it on something else that's a horrible way to think about your fellow people because i'm thinking through the money guy show we're changing people so you understand the difference between use assets with the power of your army of dollar bills the opportunity cost of actually using this money working for you that's what we're here for so the first thing though because this is one that i feel like there's a few traps that catch young people and i can tell you because i had friends you graduate college you're all proud of yourself because you have accomplished you've made it through the gauntlet it's time to reward yourself and you know it's not like 22 year olds go out and buy houses typically unless they're bow handsome but but most 22 year olds go reward themselves with like a vehicle yeah i've heard this this is how we do it here's the problem with vehicles though man you look cool that new car smell it's awesome but these things they depreciate they cost money to maintain them you have to pay money to fuel them and then there's lots of other ancillary costs like insurance and then it's a matter of time before a grocery store buggy zones in on the side of it anyway and makes you feel like oh good man that special peach that i had is now damaged so we have proof of this i mean if you think about the typical vehicle and it is napalm to your personal finances they depreciate like a rock that's right we even had daniel put together this is data from edmonds this is sort of the typical depreciation of a new car so uh on the lot it's worth a hundred percent of what you're going to pay for it as soon as you drive it off the lot like the day after it is no longer worth 100 and on average uh a one-year-old car is worth about 81 of what you paid to your car 69 58 49 40 33 27 21 15. and by year 10 you have about 10 residual value of what you paid for the automobile so we always we we like if you go buy a used car that works for your your family try to get it between that year three to six definitely i mean that is the key part let somebody else pay that big part of the depreciation but just respect the car thing you know there's a reason when we talk 23 8 you know somebody asked me recently on youtube on the comment section he said where do you guys come up with that here's the whole purpose of 23.8 is that we're trying to keep your eyeballs get from getting bigger than your wallet that we try to give you the flexibility i think that's one of the things that makes the money guys show different than a lot of other commentators is that they give you absolutes and in a lot of times we know life is not as black and white as people will present so we try to give you the flexibility but we are counting on you to be responsible so that's why we do require 20 down don't finance longer than three years that's to protect you from the depreciation and then we don't want it to be one greater than eight percent of your income so that way it's you're leaving a lot of life there with the other 92 percent and we want to make sure the investments are bigger your monthly investments have to be greater than your car payment and remember the biggest one of them all don't go buy a luxury car unless you can pay it it's same as cash now one thing uh if you're out there listening on uh itunes or i heart radio stitch or you're not in the live stream we do this this show as a live stream right on tuesdays and there's actually a chat that's happening right in front of me and i think it's wonderful uh and one of our one of our folks vinyl he made this comment he said uh look if if a car can blow up your retirement you probably don't have enough money and i want to make it clear what we're not we're not talking about the purchase of a car blowing up your time it's a behavior it's a behavior that we're trying to get you to understand that when you buy use assets whether that use asset is a car or a home or we'll talk about if you're just filling the blank it's not about that one singular purchase that you're making it's about a lifetime a lifetime of making those decisions that are not ultimately moving you closer to your financial goals they're pulling you away from them the sooner you recognize that the sooner you realize it the more quickly you're going to be able to actually work towards that place where a car decision won't affect your long-term finance that's exactly right especially i'm thinking i'm looking at my 25 my 30 year olds my 35 year olds guys every dollar has so much opportunity there's a reason i have this koozie it says this one dollar beer cost me 88 is recognized now realize this is a person retiring when they're 66 years of age not 65 because we we respect everything but it is one of those things where i want you to understand that every dollar has so much potential and i don't want you to have regrets later now what you mentioned earlier though housing because this is one look up until 2008 i think a lot of people thought they that adage that well they ain't creating that creating any more making no more land so so you know it was like you couldn't lose money with real estate investing before we hit 2008 and then we realized oh you know we can we can run this thing up enough to where you can lose money on it but i want people to also understand this is one of those things you can turn a positive into a negative where your primary residence a lot of people think that they'll keep stretching stretching stretching going bigger bigger and the problem is you can actually price yourself outside of happiness if you think about every time you upgrade your house or if you're stretching yourself the bigger square footage is going to cost more to heat and cool yep it's gonna have more insurance costs and it's gonna be more rooms you have to put furniture and stuff in that one is the truest that's one can i be honest when i went for my first house my second house i didn't think about that one i was like man i got these bedrooms i don't have people in these bedrooms but i can't just have them sitting there empty and the further you move along in life the less able you are to let rooms sit empty in your house a lot of folks only think about that purchase price that thing on you know when i go to zillow or mls that's the cost of the house that's only part of it yeah and if you don't recognize that again you're not setting yourself up to be able to move towards your long-term financial goals and then i have another risk that i think financial mutants specifically you run the risk of we all think that we are country i mean financial mutants you guys you're watching the money guy show you're a contrarian and a lot of you guys you're thinking you know what it's best if i am going to stretch it's best to be the cheapest house on my street because and a lot of you if you were stretching to be the cheapest house on a very nice street you might also be the poorest person on your very nice street and that sounds good because the thought is is that when you go sell the house 10 years in the future if it's the cheapest house on a very nice street you're probably going to have an easier time to sell you plus you're going to have more opportunity for appreciation this is going to be a great return the problem is you might not be taking into account that if you are the poorest person on your street it might also create a lot of unhappiness right because we all know the people we hang out with influence where our happiness is what our spending patterns are and so i know that's contrarian to think that because it sounds like a great value to get the cheapest house on the street but i'm telling you might be setting yourself up for a lot of other things don't let use assets be what you consider an investment because you're actually living in this house and i think you have to understand what it is that makes you happy and what is eval you know we uh we live here just south of nashville and it's a really hot real estate market and i have some friends who they bought a house a couple years ago and it's gone up in value right i mean it just has blown up in terms of the equity that they've built and they keep saying man i'm gonna sell it i'm gonna cash out i'm gonna i'm like why you realize that when you sell this house that that 20 30 40 50 percent you've made on your house when you buy the next house unless you're moving somewhere else you just have to buy a bigger you it's not gonna so don't always try to swim upstream just because you can just because you can't move into the bigger house into the nicer neighborhood have a nicer thing if that's not part of your plan don't do it just because you can because it's just like you said brian you will price yourself out of happiness i thought so i always get love giving a few stats to kind of close out a segment put an exclamation point on something in the next millionaire next door you know the follow-up that sarah did to her father's the millionaire next door it was actually published what the median home value for millionaires was and it was 850 000 um 3.4 times their current income on average or median i should say and then the median purchase price was 4.65 so a lot of these people had well they had appreciation yeah they've been that's what i'm saying is they stayed in the house for a while i didn't say most millionaires went out and bought an 850 000 house says they bought a 465 000 our house and they lived in it they used it and it grew it turned into an expensive into a nice uh price appreciated home yeah i mean it ties into why they're the millionaire next door i thought this last thing because talk about secondary residents because this is another use asset people think you have this mental checklist of what success looks like a lot of people think well i'll go buy a second home that's when i get the vacation property to reward the family for all that i've done 64 percent of millionaires have never owned a second home or vacation house yep because again if we talk about the use asset that you have that has the insurance and the furnishings and the utilities it's an asset that you're using every day imagine if that use asset is one you only get to use a few times a year those costs are still there that draw on your armored dollar bills is still there so before you make that decision make sure that you know your why around why you're making that decision no doubt so let's talk about number five this is the fifth thing that millionaires don't invest in or at least they understand better than the typical person is what about speculative assets yeah this one is one i feel like that's huge right now uh because without being too polarizing and without throwing any stones i feel like there's a lot of speculative investing floating around in our financial world right now very frothy i mean if you think about all the things i mean 2020 was the year of the pandemic of course still ongoing but i mean it was definitely the year that people were talking about bitcoin talking about tesla stock all those behaviors now look you can be an investor in something like tesla you can even be an investor in something like bitcoin but all the people who are out there that they're running it on the momentum that's not investing that's speculating when you're trying to catch the momentum of a short-term swing you're not holding this thing five to seven years you are speculating aka gambling versus investing which is you don't care what's going on with it because you're a long-term holder and that's i think and look a lot of you guys are going to mishear this and you're like oh they just hate bitcoin oh they hate individual stocks i'd actually give you permission especially if you've gone through the financial order of operations and you've done it well go have fun with a percent a small percentage of your assets i mean i have some neighbors we've had you know we meet on friday or saturday night having a few cocktails and talking about these type of things and a few of them have told me you know hey i'm goofing off with this i have no problem with that as long as it's less than three to five percent of your investable assets and now brian i can imagine i can already hear the people out there saying but guys no no i heard you earlier i've been paying attention i've got my notepad i've been writing my notes and you guys said specifically that there's this like efficient frontier that i can live on with investments and the more risk i take the higher my rate of return so if i want to have all of my money into speculative investments if i want to put it all in a bitcoin or all in a tesla or all in a game stop we're all in a fill in the blank because that is very very aggressive and very very risky it means that i'm going to make money no that is not the case just because you take on more risk does not mean that you are going to have a higher rate of return and i think a lot of investors especially in a very mature bull market forget that yeah i mean we've actually had a perfect case study this game stop stock you know we we actually had a a quick intro to our question and answer show on a tuesday had the crazy swings this doesn't even show you the rest of the story because we all know gamestop stock as well as amc stock and some of these others that kind of got played through this whole short squeeze situation they got crushed they got crushed and that's the thing i worry about all the investors who are new to investing brand and it's not using investing i'm being very generous with them but people who are brand new to financial products that heard about this through the radio through the tv through a pier and said oh i gotta get in on that free money and then lo and behold they're gonna lose 70 80 90 of their investment and they'll forever cuss and poison the next generation of oh that game isn't real it's rigged it's horrible it's so you just have to understand what you're actually doing with speculative investing you're gambling you're not actually doing this off fundamentals nobody you think anybody cared about the fundamentals of gamestop i i think most investors that participated in that over the last month i'd be willing to bet they didn't look at the balance sheet they didn't check the income statement they didn't go look at the financials if you were someone who did and you're still invested in it after looking at the financials and looking at the income statement you know maybe your version of fundamental analysis is different than mine i think you said something that's very powerful is that when i mentioned earlier the efficient frontier the more risk the more anticipated rate of return this is a great transition into what if you have a family member or a friend who wants to start a small business and we all hear the stat you know millionaire next door and other things i mean we're even products of entrepreneurs are a huge portion of millionaires so you you think hey if if my family or friend is doing this guys you talked about efficient frontier i'm taking more risk i'm gonna get a better rate of return you realize the reason the rate of return is so strong is there is a high failure rate that's right so we always tell people when you're talking about speculative assets look entrepreneurship small businesses we love it i mean we are we are proof that this whole concept works but it is a scary concept to where i want you to know if you do this you kind of just like we've mentioned set up this entire section speculative investing should not be the lion's share of your financial assets three to five percent is what you should be kind of considering you know when you're helping a family member a friend or something where you're getting something that's a little further out there on the risk spectrum that it might be so far out there that you run a really big risk that you're going to be wiley coyote that you know it's going to saw on it and it's just going to fall off you have to know you might lose that money yeah if you're going to be an investor in one of these businesses one of the best pieces of advice we can give you is whatever the sum of money you're thinking about investing you need to make sure your financial situation is solid enough that if it went to zero you would be okay it's no coincidence when we see these stories of celebrities who had these big like multi-million deck a million 100 million dollar contracts and they were on top of the world and fast forward and 10 years later their dead broke often times it's not because of the mansions they bought or the houses they bought or the jewelry they bought or whatever it's because they had friends who wanted to go open up the car dealership or open up the restaurant or they co-signed on all these different endeavors and didn't really anticipate what their true risk was so before you are willing to take on that risk look we all love our children our grandchildren our nieces our nephews we all love our family but just like on an airplane you have to make sure that you put the oxygen mask on yourself before you can help the person next to you your finances are no different before you can invest in someone else's well-being or future opportunity or entrepreneurial endeavor you need to make sure that you are on a financial sound footing that if that thing goes bad it doesn't completely derail your entire financial life so we just covered the five things that millionaires don't invest in i want to kind of close it out with what i think does create success in the long term and people who are successful with money especially do invest in and we make this simple for you guys the most important thing you can do guys is focus on the behavior of actually paying yourself first actually focus on saving money for the future and i want you to get to the point that you're saving 20 at a minimum 20 to 25 of your gross income as fast as possible get to that threshold so your army of dollar bills can start growing you guys ask well where does that money go how should i do that it's simple guys if you can tell me how much you can save each month when you need the money you can go buy an indexed target retirement fund some of the two biggest providers are fidelity investments with their index fidelity freedom funds vanguard and their target retirement funds go check those things out and then you go find out after you've had enough success where that money gets to be 500 600 700 000 you'll say guys this is great but i feel like there's another level and that's when i'm counting on you to graduate through the abundance cycle at that stage this is why we give you all this free advice is that we can do this because we know our only ask is when you get so much success that you realize oh my goodness i'm the ceo of almost a seven figure empire now i'm worried i'm gonna blow this thing up or screw it up i don't know what i don't know i'd love to have a co-pilot we work with clients all across the country and that's why i love this we're going to invest in you and it might be years down the road before we get anything out of it but man does it work we've been doing this show since 2006 and it works over and over i've got a lot of you folks you started watching this in college now fast forward i hate to say it i'm getting this old but fast forward you're now an executive you've started a company you've done something that's created success and you remember who planted the seeds that have led to success and that's why we know that the abundance cycle bears fruit go do what we talk about and you will be successful you also in the short term if you want to know what you can do to pay us back you know invest in the like button for us on our youtube channel go subscribe you see how subtle he just dropped that and investing we're working on it yeah let us know how you like that one he can just through that one out there so guys but definitely go subscribe we love creating this content go check us out moneyguy.com by the way also moneyguy.com resources that's a great tons of free free stuff to just keep investing in your success because we know look you do good things for people you're generous with it it comes right back around just have to give it time yep love it love it love it money guy backslash resource as you are building up brian said if you answer two questions uh how much do i want to save and when do i want to retire that's a really good start but if you think i want a little bit more what about like should i do raw should i do pretax we have a thing available out there for you called the financial order of operations we have a free deliverable on the website moneyguy.com resources if you have not used this or at least shared it with four different friends you should go do that because we think it's awesome letting you have an instruction manual for your army of dollar bills and you will be amazed that once that army gets some momentum it is ready to take over the financial world money guy team out you

Channel: The Money Guy Show

Views: 53,734

Rating: 4.9241195 out of 5

Keywords: money guy show, debt, budget, cash, real estate, insurance, how to make money, save, credit card, compound interest, buying house, buy stock, success, personal finance, 5 Things Millionaires DON'T Invest In!

Id: uFtZN9vhU6I

Length: 51min 39sec (3099 seconds)

Published: Fri Feb 12 2021