Financial Advisors React to Old Advice!

you asked for it we did it we react to old shows did our advice change it's Brian Preston the Buddy Guy Brian I think it's so funny I get I get this question pretty often whenever someone finds out you know obviously we're financial advisors we do this for a living and we've been doing the show now for over a decade approaching two decades can you say that 2006 so where was 14 full year were 14th years yes almost 20 years almost two decades that's what I'm gonna throw out there and people ask me all the time like are you nervous because like you say something and then it lives up there forever what happens if it changes what happens if like you said something that wasn't right well we try really hard not to say things all right but we found that is the test of time sometimes things do indeed change yeah right we got a question we got in it we got a through the contact us section mark from Wyoming sent us and he said and this was at the bottom of his reach out to us he said PS not that you're in need of suggested topics but this question might yield fruitful discussion given that you've been doing this for over a decade what advice from older shows is shifted giving yours and others research in a shifting landscape of financial planning parenthesis he added and why so I want to take it a step further because we already get a lot of trolls that come out and say why do you say this why you say so I want to tell stories because I do think look I'm an educator I'm not a great salesman I'm a great educator and I like to teach through stories because I think human the human experience is when you hear somebody share a story why do you think people were drawing things on the caves is because it's just easier if you have context you understand what's going on so we will be will be sharing some stories but I want to go step further so it wouldn't be so all focused on us so I'll put in some money guy teachable tips so that way you guys could actually learn from some of the things that we have evolved on so the way this is laid out we're gonna say so a piece of advice we gave in the past we're gonna tell you how it changed and why it may or may not still be accurate and then we're gonna tell you some teachable tips that you can take away from that that's kind of the format that's perfect so let's jump right into this so this one is near and dear to our heart it's part of the big give we did this was circa 2013 somewhere in there remember I have a daughter who is autistic and we wanted to raise some money for for autism so we actually had the big give which was we came up with a campaign called tightwad nation and one of the ways that we thought we were really gonna cut cut our expenses for this campaign is instead of hiring actual models we were gonna model the merchandise ourselves so if you ordered one of the shirts you probably got this picture in the mail with your shirt of these two strapping young gentlemen right there showing the time this is this is standing outside my old front door in Atlanta so if you want to know yes I had decorative doors with that type of work on it but everybody to comment on this one everybody sees is why y'all look so young and then I had to remind Bo you really are young I just look like too young and that's probably because I look like I got my haircut done at the barber who cuts all the kids in town because you can see I mean my hair that is I have definitely upped the haircut game so all of our our podcast listeners go out to YouTube and you can see what a thro old vintage $10 haircut cost back and I let you know sells out of Atlanta Georgia so let's talk about this I want to give some context because this is this is going to have a then and then it's gonna have a now and I've recognized something and I feel for a while I had some shame about it yeah because it was like wow am I really that person but now I've gotten so much more comfortable I'm just embracing it I want to share so that other people don't have to go through the same shame that I had is that I am one of the cheapest guys you'll have ever met in my 20s and 30s and what I mean by that is and even before then because I was the guy in high school I had perfected a seven dollar date I've talked about that I've given details on previous shows if you ever want to know for youngsters out there there is a way that even with inflation I could probably still do this date for under $10 you can make it happen and you too can end up like a tightwad like me that graduates out of these steps and but then it goes a step further when I started my first company in 2002 um we didn't have what we have now we have a whole education platform that creates inbound mark because of the abundant cycle people have been listening to us going on four to twelve for two we're in our second decade now they are reaching success they're reaching out to us that's awesome back in the old days back in the day before everything kind of took hold like it was I was marketing more of a traditional way huh I was writing newspaper columns for the local paper and then I was trying to also reach out to Rotary clubs Kiwanis Clubs to see if I could come speak and one of the first published articles and one of the the first topics I talked about was and this is that literally the title got so I'm not making this up and we have a screenshot to show that I'm not making it up drink water at restaurants to be rich I just want to say that again because it's so fantastic drink water at restaurants and be that's all it takes drink we had the latte factor bran Preston was out there telling everybody drink water and by the way there is a reason this was not successful but I want to show I want to give context that I really was a tightwad beau to give them some context of how long ago this was but also just how ridiculous it was read what point number one is and what the bullet yeah so this is the the fantastic wisdom that Brian want to share about that is he said let's assume that you eat out 20 times a month with beverages costing not including like wine and spirits an average of $1 and 50 cents each that's a monthly cost of $30 if you invested that $30 per month for 20 years earning 10% per year you would end up with around 20 $2,800 I have not been besides McDonald's which has $1 beverages there's a PSA for them but it's um there's not many restaurants that you sit down at the drinks are a dollar 50 yeah they're $2.99 if they're not 399 but here's the thing and look I'm not wrong and I don't take back my tight wad ways cuz I was a tightwad him definitely as a teenager I was the guy with the coupons my buddies talked about that I was the guy in my 20s that was drinking water instead of you know an ad-free game if you're gonna have a beer it wasn't at the restaurant yeah so you do that stuff before you left all that stuff went into effect but then something has happened in my 40s and I mean look this is a good thing because it means that I made the right sacrifices when I was younger in my 20s and 30s that now money just does not fill is tighten and maybe I shouldn't confess that but it is a reality because now I do cuz I get picked on in the comments section of YouTube because people like we did some Tesla ships so everybody knows I have the Tesla but then I've mentioned that compared to my wife's outie she has she has an SUV Audi and and look that's ridiculous to me I look at 20 year old Brian would think that and I get it when I get comments but that's where we are now we have I appreciate the artisan ship it goes into an ice mill the nice vacations so a lot of you guys ago feel alienated and I don't mean for you to because I was you when I was in my 20s and 30s but I'm telling you if you do these sacrifices in your choice and 30s you will graduate at this point where you'll look back and it's that talking-head song like how did I get here you know this beautiful house and this beautiful wife and all it is one of those things you've got to taking an account so I want to tell you my street cred so then I can tell you what the money got teachable moments are so what you're saying is you know back then you thought in order to be successful in order to be rich you had to be just as tight as possible squeeze every single penny you had to drink water restaurants but as we've kind of matured a little bit it does change being a tightwad isn't always the sign of being successful I'm still very good with my money but I've figured out that as long as I'm paying myself first and I'm making sure the money is going appropriately automated ly into the right places it's okay if I am you know spending some other things just because I like creating memories I like creating experiences and all that stuff plays out so and I get it it this is so not tightwad nation but I had to I wanted to make sure I clarify that so here's here's the teachable tips know what your why is why are you being a tightwad because I will tell you I had a phone call just last week with a friend from Georgia they were going through some some he was having some some conflicts with his wife and his wife was picking on him about how he hyper focuses on how every dollar that they spin has to be handled a certain way I was like what do you do we I mean I guess I get that when you're setting up just like when you learn to start financial you know success you have to have a budget you have to know where every compartment that the money is going but once you get a cash management plan where it's all kind of going out automatically you are going to drive your significant other crazy you kind of look like a miser if you are in a comfortable situation but you're still hyper focusing and making your spouse turn in every receipt you know that when they went to the Kwik Trip and got a drink I mean I just go blow it all up it really is yeah I think the the big thing is like no you said no what your why is that's knowing what your why is on spending like what are the things that you actually care about what are the things that are worth spending might like me I don't mind drinking water at a restaurant but it's not because I am gonna be rich because I do that's just because I don't care about drinking something else yeah however I drink coffee like I'll get nice coffee you're often I like coffee you and Rebbie your coffee so we you know we'll we'll spend money on that cuz that's not the real value but because we know that we follow the order of operations we follow the things we're supposed to be doing when we're supposed to do we can check all the boxes once you do that you don't have to be a tightwad in every facet of life you know you've done the things you're supposed to do in the order you're supposed to have done the key part there with the order of financial order of operations is you have a plan you know how your cash reserves are you know your insurance coverage is taken care of you know you're saving 20 to 25 percent look that's why when I get troll comments for 20 year olds when we do our net worth by age 4 20 year olds I get who's saving 20 25 you're right I wasn't saving when I was 20 years old was not saving 20 25 percent but that's why you're why while you're in your 20s is you probably are going to have to cut you have to make more money or you have to cut but there will come a time if you do all this up you start stacking your army of dollar bills your money is going to start working for you so you're getting your 40s and you go what's the while I'm why I can't do this your perspective might change a little bit and then that's what I'm saying you will outgrow you automate we talked about all those things and then here's the other part is that if you do spend what you're pay it's okay to spin what you're passionate about as long as you've got the basics covered exactly right and as long as you do it the right 'we just our example on cars and that sort of thing if you spend well you'll set yourself a success so taiwan nation our thoughts on steering the taiwan nation have changed a little bit over the years I still respect and I want my twenty and thirty year olds be tight you know live you know it's that hold I'll give Dave Ramsey a plug on live like no one else you can live like no one else later it really is the concept of deferred gratification love it so let's talk about number two we're picking on Brian today it does are always my favorite press home equity one and cash reserves guys I really had to chew on some leather on this one is because I was no different than a lot of you guys in and bow you you just told me the other day you feel like clients right now are having this feeling about cash yeah right I have clients all the time that's men hey and I think as we forget the market was so good last year the markets been so good for the last number of years we forget and we're like why are we holding this cash why do we have this anchor holding us down I just don't need it it's not serving any purpose and it makes me nervous when I start hearing that over and over again so if you go listen to early money got shows I'm just gonna go and tell you what's out there and what you'll hear you'll hear me bragging about I don't keep cash I had no cash reserves why would you keep cash reserves because I had a debit card and I had a checkbook to a six-figure home equity line that was prom minus a half and at the time because you know we've been in a very long period of low interest rates it was practically free I mean I will tell you the bank gave me this no cost home equity line on my house and and we even had and I wanted to show you guys because I have the appraisal when we get it the home equity line check this out you can see back in late 2006 October of 2006 my house back in Georgia was appraised at five hundred and ten thousand dollars I paid you know little below four hundred thousand it was a great great real estate market I mean it was a great market I had no cash because I had access to a home equity line if I got into an emergency I could always get the money no big deal and y'all can see the rest of the story is in March fifth of 2010 it might have been before that because this was actually I wrote a wet to Wells Fargo saying wait a minute what like is this works they wrote me a clarifying this is the response letter I got on March 5th clarifying me when I said how can you do this to me and take away my home equity line is because I did I got a letter from Wells Fargo saying you know look you we don't think you have equity in your house anymore so we have reevaluate we've revalued and we've capped and we froze in your home equity line and you can see this was from March 5th of 2010 they appraised my house through their AVM method at 273 5 this is the exact same house that just a few years earlier they'd appraised at five hundred and ten thousand dollars so by their measurements I was now probably at breakeven or maybe even slightly underwater and that's just not a great place to be because the music can stop on this and this is why we've taken a lot of heat also because we just did our talked about networks and we talked about real estate and look I think some of you guys took it extreme said you can do it at cost or you can use market value like Zillow or something like that but I choose and you do the same thing I think I still do it at cost because I don't want my net worths annual net worth they make having runaway appreciation in what I consider a use asset meaning there's no way this is giving shelter this is keeping my family safe and it when it rains outside I'm not going to be able to use these assets because I don't count on equity it's just it's one of those things so be thankful thank you thinking of those type of aspects when you're figuring out if you should consider using your your equity of your I think it's a great point because imagine how different your net worth statement looked in 2006 with the home value there versus in 2010 when the home value got cut did anything really change in terms of your saving or what you were doing for to build financial independence not really it was sort of fictitious value anyway so that's why we think value use assets at cost and you will stay conservative and then if you sell it downsize trade whatever then you get to recognize that there's nothing wrong with it and you say this all the time Brian here's why this is really scary generally speaking bad this do not happen in a vacuum yep so if there is an event where the Valene your hull gets cut by in this case like $200,000 or by 4050 percent there's a chance - that your investment assets have gone down there's a chance - that the job economy is probably something there's a chance that maybe even your employment is at risk you have to make sure you maintain that liquidity and that emergency reserve because when things get bad there's a very high likelihood that everything gets bad in the same yeah I want to summarize because that's the money got teachable tips that I had here was really there were three of them as understanding the power of liquidity in cash reserves you gotta have cash because both said it right because I had this bad things tend to be batch yep you know what you see is you see a down economy property values on your real estate go down loss of your job might potentially happen the same period because it's downsizing and then your her investments and you're down so the liquidity is going to be the bridge that gets you to the other side and then you put timing asset classes don't just happen in equities it kind of kind of reiterates yeah we point we talk about all the time that you know a lot of folks think about timing the market is like okay when do I go buy stocks you can also time yourself out of conservative asset classes all the markets doing really well you to get rid of my cash and go fully invest that that's no different than trying to time the market you're just timing a different type of market we think that a well diversified portfolio should say well diversified and that's what protects you through the long term so let's move on to the third thing that has changed is when to Harned vizor yeah this one this one is sort of an interesting one well i and we could have turned it into a slide but we didn't but i found my original menu of services back when i started my company in 2002 and you were making fun of it because i had on there for $200 you could have hired me and I would have done a seminar on how to I can write a life tracker a lighter life tracker but it was literally going to be a three-ring binder where here's your insurance policies and here's your account statements and that just sounds like that straight out of 1974 it is when I started the company realized my minimums were a lot different it was any $5,000 but there was a reason for that the world was a completely different place back in 2002 because there was alphabet soup of commissions you had H all your mutual funds had a shares B shares C shares they even have y and z share come you know and each letter of the alphabet represent a different way that the advisor who sold those funds to you got paid the way the Commission's were were paid out so that was complex that was hard that was made people's heads spin a little bit index funds just were not as prevalent the average internal expense ratio of mutual funds back when I first started managing money as when I started my company was one and a half percent you guys like who would pay what they were allotted that's the good funds were one and a half percent the other ones there was it was not crazy for B shares to have internal expense ratios that approach two and a half percent all day long I mean it was just amazing so you guys when you hear stuff like that you're like well yeah I can understand why your minimums might have been seventy five thousand dollars is because people were just getting taken to the to the to the cleaners by people who weren't doing good work we didn't have target retirement funds the only thing if you wanted asset allocation funds you could go buy a balanced fund which had a rigid 6040 60% stocks like the S&P 500 what no it wasn't who knows it was just s it was growth and versus kind of bond yet for 40% because indexes just were not as prevalent as they are right now the other thing that was going on back then is you just didn't have the same access to information there weren't any podcasts or financial YouTube videos maybe you could find some articles or a magazine subscription to get information but just the availability of really sound information was not back then 20 plus almost 20 years ago as it is right now today so let's talk about money guy teachable tips with all the fries or resources you just talked about both because now we have blogs podcast YouTube this stuff just was not there in 2002 you might not and we say this all the time you probably can do a lot more on the do-it-yourself side until you get to four to five hundred thousand dollars of investable assets because and at that point but what's the biggest reasons we see people when they get to that four to five hundred thousand dollar level that they kind of start thinking they need some help yeah so what we generally see is there is sort of a combination of things that happen either the gravity of your financial decisions become so big that when you make a mistake or a blunder on big numbers it has big implications when you're first starting out if you've got five thousand dollars saved and you make a mistake it'll cost you ten percent it's just not changing your life when you have five hundred thousand dollars saved and you make a mistake it becomes pretty significant so the gravity of your decisions gets pretty big number two you just don't have enough time as we get older as our situation gets more complicated we have social commitments family commitments job commitments everything pulling on is just kuzmic like we just put the stuff on the back burner never get to it or third it just gets more complicated as we get older as our life progresses complexity just kind of happens you you can try to hide it but it just kind of shows up that's exactly right part of it and so we think because of those things it's generally what we see is around that four hundred five hundred thousand dollar mark is where a lot of those pieces come together and it makes sense to get some professional help and I love looking I love the resources that are out there target retirement funds but there is gonna come a point this is something I have to explain to people all the time like well if target retirement funds are Robo advisors are so great why do you think people grow out of them and I always have to explain to them look they are outstanding because they're practically free the problem you run into is you as you get bigger your assets get bigger you're going to take advantage of loss harvesting you want to make sure you want to probably get creative with your charitable giving you want to be able to do tax location many where you put especially after this new secure act just passed tax location is going to become even more important for your long-term planning on what your how this is going to be passed down to your beneficiaries so all that stuff comes into play but it is definitely a before and after of when you needed a financial adviser from 2002 when I started my first company to where we are now in 2020 exactly right um let's talk about and this is a big one I even tried to find some cool slides on this one but we'll just kind of talk through it is active versus passive investing and I think we did this on purpose if we did we're just gonna ten like we did what a wonderful segue to talking about back in 2002 where there was this like alphabet soup of the a shares and the be active was like hi that was the thing that people were super excited about because you know we had seen the dot-coms or you could go out there and pick these companies and you if you were just buying the market buying the index you were it's like you were sitting still back then right well everybody marketed on that you bought that the the smart money had the best managers and then there's you know it started with Jack Bogle you know 1975 with his big experiment that turn into Vanguard you know start saying well wait a minute how many let's actually start taking an accounting let's do a report card and see how many managers are actually doing what they say they're doing and beating their their their their their indexes the markets in general and we found out and this was kind of a scary thing is that most active managers are really horrible at their jobs yeah we actually looked at a study and what they said is okay if we just look at three domestic asset classes we want to look at large-cap mid-cap and small-cap and this is from the 2018 speed of a study how many funds outperform their benchmark over a 15-year period so over that period as we're talking about information is changing and the thing is getting a little little more simple only 8% of large-cap managers out before they're been there at benchmark crazy on the mid-cap side only 7% of managers outperformed just the the broad market index and then on the small cap side only 3% of active managers could outperform so even if you pick a managers gonna do it good in one year even if you pick a manager that you just believe this year they're gonna have a stellar year the statistics would suggest it's hard to do that one year after the next I can be consistent they're they fall off the same group the the group that is beating the markets one year is not consistently the group that is beating at three years five years down the road they just have all the staying power is horrible and I loved what Daniel did with the different slides you got that you start with that one tier and then you got a tier with carrying the box like they got laid off and then you got the small cap poor guys nobody wanna know who they don't want you to know who they are so we're in a paper bag for all those that are listening out there in podcast world here's the thing is that this started I found some that old literature I used to tell everybody go buy the S&P 500 because I considered it what we call an efficient marketplace over 500 companies there's thousands of financial advisors how could they know any more than anybody else on the small number of companies so it's a very efficient market you oughta just buy that but I always told people don't look at small cap you know you probably need a manager for small cap because there's so many more of those companies right and so many fewer people looking at and look at that's why I see a slide like this it reminds me how you do need to be prepared when you're managing money or even for making your own decisions keep an open mind to read the data so you don't let old things turn into blonde spots that keep you from making adjustments to adapt to the changing world you live in international was probably my last cuz I had moved on from smoking you know saying okay small caps okay to be an index to internationals probably my last holdout because I was like well but the thing is is even if you could figure out if you have an efficient economy there's so many different countries that have if you don't have analysts looking at those countries how could you even have an efficient way to track those markets well because of technology there's so many indices out there that it's it's much easier to get hold of these things so we pretty much love ba you know love indexes on about everything now we did I will tell you this is the only counterpoint it's like when the federal government was pumping out yeah so they had the printing press running and they were doing the quantitative easing and stuff you found that most index funds for bonds were distorted by governmental debt yeah so you do need to pay attention and stuff like that and we talked about that now with we've did this on a recent show real estate indexes I think get to be a little careful just because of the Amazon effect is what's going on but who knows it might be I'm willing to keep my ears open but these are the ways we're we're kind of looking at the macro movement there used to be such an emphasis on beating the market we think it's okay just to be the market just to buy the market and so a lot of folks ask it's okay if that's your philosophy then how do you approach portfolio construction this is our opinion seem too worked out well what really matters is your allocation how you spread out across the different asset classes much more than the individual security selection trying to pick okay this manager is gonna outperform or that manner is gonna outperform well we try to figure out is okay how much exposure do we want to have internationally how much do we want to have in bonds how much do we want to have in real estate if you can answer those questions really really well and then you choose really good indexes inside of those slices of pie you're probably going to be successful so kind of close this out I want to quickly go through the money got teachable tips on this is number one index funds are so much more tax efficient they don't have as much turnover as active managers so that's very powerful they're practically free if done right I mean we're seeing I mean fidelity has zero funds but then you're seeing whether it's Vanguard or looking infidelity and Schwab and some of the others they're like point zero one point zero two long ways from one and a half percent average and then these also they allow you to keep I like index funds because they like to keep your emotions in check you're less likely when you buy fund or even worse an individual stock you find that you can start getting emotionally connected to it you're almost setting up a place setting forward it at Thanksgiving look I have one individual holding oh I don't mind Tesla I bought it for completely emotional reasons it's been one heck of a roller coaster it is irrational compared to the way I look at my total portfolio which is primarily index funds so I tell you the same thing and by the way if you if you go use that and beat me Club me over the head that I just confess it on one stock it's a very small portion to my total net worth so it really is a plaything if that if that makes sense so there is nothing wrong with matching the market since matching the market probably beats between 70 to 80 percent of the managers are out there that's a winning long-term proposition love it so let's talk about another thing that's changed and I've actually done this 15 year versus a 30-year mortgage Brian I remember this is something that you know when we first started working together we used to like really preach 15 year mortgage it's hard I mean we used to say like it it just made sense get out of debt really cool you can accelerate you know you look at how much interest you'll save over the whole life or the loan we used to tell people do that 15-15-15 we would drive that home if your cash flow could support it and now look and this could evolve again because I will tell you that some of that is sensitive to where interest rates are yeah my first mortgage on my very first house that I ever bought was 6 and 3/4 see that like right now that sounds so high like 6 and 3 6.75% sounds like an insane mortgage rate if I could tell you I celebrated that I got six and three quarters because it wasn't probably six months earlier it was like seven and a quarter so and I will tell you that so it makes sense when you work when that is where rates are saving that half a percent because that's what that's what 15 year versus 30 years there's typically about a half a percent interest rate difference between them that can be a big deal but we are in right now a historically super low interest rate environment so I think it's okay to do a 30-year mortgage instead of the 15-year and you're probably like well one I want to give you my experience from the 15-year mortgage this is actually from my life what I experienced and I am a debt I'm not a debt Crusader but I am definitely a person that you know you know how I but you see my finances I don't like that right I mean it contrary to what all you people in youtube comment section say I do not like debt I don't do credit card debt I mean I pay it off month ready I don't have any car loans the only debt I have on my house is a mortgage and it will be paid off in less than 10 years from when I took out that first mortgages I mean you took out a 10-year mortgage right no I took a 30-year okay so because let's talk about it cuz that's the 15-year mortgage here was my experience I did have one 15-year mortgage in my life and it was on my second home and the problem I had with it is is that here's the situation I ran to fourth quarters are tough for me and maybe it's cuz I'm a small business owner a lot of you who are small business owners you go and know what I'm talking about fourth quarter guess what happens you have to pay Christmas bonuses to all your employees because they expect Christmas bonuses you also have to renew all of your insurance all your software all that stuff comes due at the end of the year and then you know it's just and then you have Christmas for your own family trying to buy gifts and be prosperous for your family and you realize holy cow for somebody who is tight with their money and disciplined with their money I am just gonna get something it is really lean through that fourth quarter but then you get into the second the first two second quarter the year it feels pretty flush you're like this is weird that I'm self creating this weird period in the fourth quarter where I feel completely broken out what cash reserves are out there I don't want you guys going with cash reserves that's a yes but there's still a psychological benefit I mean fear when you see how lean you're running it in that fourth quarter and then here's the other part this is this so not only do you lose flexibility on your cash flow but second when it was time to sell that second home and I was making my transition here to Tennessee you saw the valuation earlier in this show I got a crushed and because I had a 15 year mortgage it was really squeezing what I qualified for because look that house didn't sell easily so I had to care there was a period of time years that I had to own two homes own my house in Atlanta owned my house here in Tennessee so I'm just telling you if you think you're gonna get in some type of situations like that it can have difficulty when you're walked into a fifteen-year you might want more flexibility and what you're doing so if that house is sold now it's all good that's the rest of the story but it I think you can learn from that experience so but let's go over some money got teachable - yeah I was gonna say so what what is our recommendation in terms of how you approach more mortgages and paying off mortgages and Brian I don't know I don't remember when this happened but one day I think you just woke up and you came up with a number but it's just such a good number you you finally said look there's a dividing line if you're on this side of the line doing one thing from this other line do something different and it's all it's all driven by the fact of compounding growth for your retirement assets and you know what you can expect it but also try not to take too much risk that you don't run the whole enterprise into the ditch so there's a balance there and I think anybody under 45 you're really kind of it doesn't make sense especially an interest rate environment like right now where you can get a three and a half to a four and a quarter percent interest rate you don't there's no reason to go prepay all that stuff while you could have growing assets that you'll need for retirement but then when you get over 45 I think that it's okay you want to simplify your wife is changing the compounding growth effect is not as powerful as it was when you're 25 years old why not get out of debt completely and look I had this discussion just a few days ago somebody said why would you ever pay your mortgage off and I was like it's not a numbers point at that point there is a point where you a cross over worse from a psychological standpoint from a peace of mind standpoint that's why you want to own your life at retirement is because the word encumbrance which debt is does not go at all with financial independent how are you independent when you have something that is encumbering and I'm creating an obligation for you yeah and I think sometimes Brun I get caught in this trap of stuff it's common sense to me I recognize it's not always common sense the people that I'm around I've had this conversation four times in the last month talking with young folks who've had a desire to prepay their mortgage and I said I think it's great if you want to get out of debt and do that but by putting the money on the mortgage and satisfying the mortgage you may not be doing yourself any favors because you still have the ability if you say you know what I want to pay off my mortgage in ten years you could still save that money outside of paying off the mortgage build up an after-tax account and then if you so chose changers from now you could just write a check and pay off the mortgage what it does is it leaves maximum flexibility in your corner because every once that dollar goes into the mortgage we just saw what happened to you in 2000 it's hard to get that dollar back out especially there's some sort of downturn I want to go a little deeper because if I had a house I showed an example earlier if you're watching a highlight instead the full show if you go watch the full show I showed that my house at the end of 2006 back in Georgia was worth five hundred ten thousand but just four short years later less than four years is like three and a half years it was worth two hundred and seventy thousand dollars so all that equity kind of evaporated so think about this in terms of if you were pre paying your mortgage if you're a twenty five or thirty year old or thirty-five year old who's just dumping money to get debt-free you don't really get the benefit of flex ability of saving that monthly payment until it's completely debt-free right if something if it's going to take you ten years to hyper aggressively pay off that mortgage but you lose your job and you're six it's not easy to go pull all that six years of aggressive payment back out you probably be better served from a flexibility if you had that money in something liquid like an investment account and if it's a diversified investment account you probably would have to go yank all of our equity x' that are down you might be able to go pull some of conservative assets to bridge getting over the life stuff that just happens yes so so we probably beat on that horse a little bit but it is one of those things and remember I'm reserving the right that interest rates could change it so if we have a spike in interest rates where people are paying seven and eight percent on mortgages we'll evaluate it but right now interest rates are super low don't go get in a hurry if you're under 45 paying it down I'm chuckling thinking about reveal like eight eight years from now and we redo the show or something it would like we're gonna go back you'll be like remember that song we told you fifteen verse 30 we're change it's just funny full circle a thing about having video so let's um let's talk about this is kind of the last point I had and this is a big broad term this is complicated versus simple and this has changed this is this is one that I fell prey to early on but I think everyone I think all young people fall prey to this is that is that if it cannot paint with such a broad brush to say that then whenever we think about financial success and we think about wealthy people think about people that have done really good things we naturally say oh well they must have a really complicated black box super sophisticated really difficult thing that they figured out and I really want my situation to mirror their situation because that's what it takes to be successful well I remember you know I have 16 years of doing taxes and I could remember being a brand-new freshly minted CPA or an accountant that was working towards getting a CPA and doing taxes and I'd see somebody's tax return in if they had a schedule B for their interests and dividends a Schedule D for their capital gains and all those transactions a Schedule E for all their rental property and then Schedule E page two which meant they had K ones with all their businesses they own I was like wow this is so cool that II know it's true cuz I can remember thinking I still remember a tax return I did I don't remember all the numbers I don't remember the name but this guy was him and his wife this is like I said this is back in the nany mid nineties they made it like 350 or something like that but they had rental property they had K ones coming in from their businesses as I I can't wait to when I have all that stuff going on that is good just be so cool and then here's the thing is like what's so funny is I run in circles where I still have a lot of CPA friends and I have so many I have one CPA friend specifically he's trying to pay down all of his debts he's doing stuff somewhat irrationally because he just says I want my life simple yeah and I get it because here's the truth of the matter and I had this under money got teachable moment but I think it's worth bringing it up is that when success creates complexity naturally that's so true there is no need to go seek it out guys it's going to come for you I mean it is hiding it around all the corners so if you just will do what you need to you don't need to go hunt out the the complexity just for the sake that you are looking the part before you're ready because let me give you a perfect case study I started managing my you know when the scariest times for you to work with somebody when they first start doing it right they don't have their phrasing hours that has created mastery in their field of study when I first started managing money I was brand new that I'd moved on from being an accountant now as an accountant that did financial planning and the first thing you think of when you think of investments you said this bow is that rich people have fancy sexy stuff and you know so a fancy sexy thing is you want to go buy a separate account management an SMA so that you are getting into individual stocks that a manager specifically is picking out were you there for you you're not buying into some boring old mutual fund you're buying into a manager he's gonna think of your name when he buys the holdings here's the reality so I did this my father and mother I just found their net worth when I was doing trying to do research for the show I don't come from money so my parents their total investment assets when my dad was sick was like a little over two hundred thousand dollars total I mean that was everything and then but my dad had an hour a 401k that he'd rolled into an ari they had like a hundred and thirty grand into it I put that one account into a large cap SMA account with this ad manager and I still is the worst decision but I thought was this sexy it was the right thing this is what you do for wealthy people and my parents had no business being in this but I remember my dad calling and say son why they buy me three shares of Walmart why am I getting three shares of Raytheon you know as all these kind of Mike and why why is my mailbox full of junk every day from all the perspectives the proxies all the angle reports it was all there and it was it was trash I mean what's funny is that I fast forward as I was doing research for show that hundred thousand dollar investment because I had a hundred thousand dollar minimum when I finally got smart enough to get it out of that it was like 70 grand I did my parents so wrong I was not a good financial adviser at the time so I didn't know what I believed and I thought complicated was where it was at and I'm just telling you guys that is not how things work now it doesn't mean because this is the money got teachable part of it is that simple does not mean it doesn't have complexity in it because we try to create plans that have a lot of moving parts going on they're sophisticated but they still the answers you will understand it it will be simple enough for you to understand that's why we love index funds we love things that are transparent we love things that you can explain you say it all the time but if you can explain this is somebody behind you at the grocery store lon it's probably going right right and it's the part that you need to you need to minimize moving parts everybody knows I'm gonna go talk about it because I don't even know if I talked about show no prep but Tesla I loved I love my Tesla Model 3 thing that I like about it and this is what I think that the the the legacy auto manufacturers don't get when when they need a new water pump at General Motors they go hire a team of engineers to design a water pump you know to cool down that part of the the engine or whatever Tesla looked at this from a ground up and they said no we won't simple we won't we're still gonna need you know something you know cooling and other features but they're gonna figure out if we can create a cooling system it not only just cools the air conditioner but also cools this part the battery it's more integrated because they realize the simpler and the less moving parts the better and the better the design is and that's the simple gets back to simple complexity is not your friend and that's why we tell folks all the times when they come to us one of the very first things we like to do when new person reaches out to potentially work with us is with a send us what you got send us your tax returns and it's your statements let us lay it all out and see what you have and let us work you through how to simplify your financial life and that even in terms of how you save one of the things we say is let's just set it up to happen automatically I've got this much going into this account this much going into discount I don't just think about it the more you can do that the more likely you are to stick to a solid long term plan without having to go find the next private placement or go buy that sexy insurance product to go do the go read that the 10k is for the annual stock announcements you have to do that kind of stuff you can actually make it a lot more sandy don't you have to be investments I mean I just met with a couple Kevin I'm talking about you you'll hear this because he's a money guy as well him and his wife probably had six to ten retirement accounts they can be consolidated I mean and that's what so we're not talking about it doesn't have to just be your investments it could be just the structure because of your all the different companies you've worked for if you've changed jobs three or four times your spouse changed you're probably going to bunt a whole legacy of a bunch of a different accounts it looks like a quill if I say they're like your quilt of your but you can consolidate your life simple does not have to mean it doesn't have to just be the investment it could be the structure of your investments too so think about those things your estate plan the structure of your investments simple can be your friend it can be sophisticated but it should be as easy as possible because the less moving parts the more successful you'll be you know one thing I love about financial planning Brian is that it doesn't happen in a vacuum right so we design a plan for a client it's not like that plan just stays stat forever right it's something you continually monitor and revisit and monitor and revisit so too does financial advice it's something that you monitor and revisit and monitor and revisit and that's what I love about this show it allowed us to go look at some of the advice and I don't think I mean some of it was wrong SMA might have been wrong but just like the tightwad thing and they cut you know some of that stuff just evolves as the landscapes not wrong it's changed it's changed that's exactly right and I think that so long as you can look at your financial picture that way and be open to change it's amazing how much less stress you'll feel in your financial life you're not having to stick to a static I have to do things this exact way so that's a great lead-in to kind of close this thing out we have a brand new if you go to our website we've had this up for just a few months go to our resource page go to money.com check out the resource page we have all kind of tools PDFs other things you can bring in to learn how to grow your assets better I mean it is totally the teachable stuff we're sharing here we're actually giving you things that you can now use to accelerate the process and then I want you to think about the abundance cycle why do you a lot of you might be brand new this is a show that's going out in the first part of the year a lot of you guys are just discovering us we're CNR you know if you look at it we're quickly approaching fifty thousand YouTube subscribers and well I know the YouTube is I mean the podcast has been booming for going on two decades now so a lot of you are discovering like how can these guys just give away free information I just don't get it the reason is because we want you to come learn apply grow we are we are already harvesting our first crops of people who listen to the show as a graduated college now they are starting companies they're managing companies and they are getting to the point of complex they're going I need somebody to look over my shoulder that is the abundance cycle so we appreciate that we don't take it for granted we started this as a passion project to educate you and it is just paying off with creating a bumper crop and we want to keep that rolling for years to come if you're someone out there listening in audio world on the itunes iHeartRadio stitch or all of those we do a live stream every other Tuesday we do going to do this at 10:00 a.m. Central Time at the end of this live stream we're going to cut off the recording but we are going to stay live with our audience we're gonna answer your question so if you want to have some direct interaction with this acid to direct questions we're gonna answer them we are going to give away some swag what's so funny is somebody just said hey I think your next swag should be money guy koozies little you know we have money guy Taiwan nation goosies so I just think that is hilarious so if you want to hang out and stay with the live Q&A we will answer your questions and we just thank you so much for for tuning in and checking us out money got team out

Channel: The Money Guy Show

Views: 13,582

Rating: 4.8672199 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, Financial Advisors React to Old Financial Advice!, Financial Advisors React to Old Money Advice!, Financial Advisors React to Old Advice!

Id: UCwm4-bf_yk

Length: 47min 15sec (2835 seconds)

Published: Fri Jan 10 2020