Beginner’s Guide To Investing (2025 Edition)

Introduction: The Path to Wealth (0:00)

Brian: Beginner’s guide to investing. If you want to know the who, the what, the where, the how—we got you covered.

Bo: Brian, I am so excited to talk about this because we love investing. Investing is the path that most millionaires take to get to wealth. And it is this wonderful, beautiful, amazing thing that you can do where you can actually have your dollars work harder than you do. But it seems on the surface—sometimes there’s a lot of stuff you have to know about it. It can be confusing. There are acronyms and there’s different types of options and there’s different ways to do it. And everybody—and I mean everybody—has an opinion on the best way to do it. So I’m glad that we can walk through today what you need to know when it comes to investing.

Brian: Well, I remember when I got my first job and I knew I wanted my money to work for me. I knew I didn’t want to be in this thing all by myself or just my labor and where that was it. I eventually wanted somebody to step up so that I worked because I wanted to, not out of obligation. I wanted my money to work just as hard as I did so I didn’t have to use my back, my hands, my head, and my brain. So this is going to be the “how you do it” side of the thing. So if you’re like I was in my 20s—I don’t care—the typical American doesn’t start even thinking about investing until their 30s. I don’t care where you are. We’re going to come to you right now and hopefully load you up with how you can start buying small quantities of bigger things and create tremendous success for yourself.

Working Against You (1:40)

Brian: Because here’s the reality of the world—there’s a lot of things working against you. Whether it’s taxes, whether it’s inflation, we have to flip the script. And the way you do that is by owning things versus just living in this world where everything around you, you’re renting and not buying it. So we’re going to get into that today so you understand that as you buy into whether it’s stocks, mutual funds, or other things, you can put that ownership to work so you don’t have to do so much yourself.

Bo: Yeah. At its core, investing is simply taking ownership in something. You are sacrificing some of your hard-earned dollars to become an owner of some other type of asset, whatever that asset may be. Today we are specifically going to focus on liquid investments which are available to everyone. Everyone out there can invest in these types of vehicles. So we’re going to walk you through—already said this, Brian—the who, the what, the when, the where, and the how much so that at the end of this episode you can get started building your great big beautiful tomorrow.

Who Should Invest? (2:42)

Brian: So you heard me say I figured this out in my early 20s, but the typical American is in their 30s. But the big question is who should invest? It’s the very first one—who is the who and who should invest? Now this shouldn’t surprise you. I think everybody should have the opportunity where their money works just as hard as they do. So the answer is everyone should be an investor—with just a slight little asterisk.

Bo: There’s a slight little asterisk—everyone should be an investor so long as you’re at least past step one of the Financial Order of Operations. Remember that’s the nine-step tried-and-true process of what to do with your next dollar. Step one is having your deductibles covered. Before you start investing, before you start putting your money to work, you need to make sure you have a little bit of money on the sidelines that can keep your financial life out of the ditch. So if you want your free copy of the Financial Order of Operations, feel free to go out to moneyguy.com/resources and download yours. So then once you get past step one, then everyone.

Investing Myth #1: I’m Too Young (3:52)

Brian: But wait a minute. I think we just said everyone, but I can already hear the voices out there. They’re going to be like “but guys, I’m young, I’m broke, I don’t have any margin in my life.” I want to cover—what are some of the investing myths that keep people from actually starting to build their army of dollars?

Bo: You just hit the first one. I can’t invest because I’m too young. I just started out in my career and I’m only 22, 23 years old. And yeah, I know about investing, but that’s for—that’s for people who haven’t figured out. That’s for people who are more advanced in their career. That’s for people later on in life. That’s just not for me as a young 20-something. I’m too young to invest.

Brian: Well, this is the one—I mean full stop. I want you to lean in on this. If you are a young person and you’re looking, you feel like the world is kicking your rear end right now because we just came out of this inflationary period, things cost so much more, and you’re just mad. You’re like “I can’t believe this world is stacked against me.” This is the part I need you to understand. Yes, some of those things are going to be hardships, but realize you are a billionaire of time. That’s right. And when you’re young, every ounce of your time that you actually put into investing is going to exponentially benefit you because you’re going to be able to exploit the eighth wonder of the world, which is compounding growth.

The Wealth Multiplier (5:13)

Brian: And that’s why we have devoted so much of our resources and so much of our education trying to pay it forward to young people to understand—every dollar for a 20-year-old is worth $88 at retirement. Every dollar for a 30-year-old is worth $23. Still incredible, but there’s a big drop from that 20-year-old that’s $88. Every dollar for a 40-year-old is now $7. Every dollar for a 50-year-old is $3. Do you see that? So every time—literally the difference between somebody in their early 20s trying to save and invest versus somebody in their 40s—is a tenfold difference. So if you’re a young person and you’re mad that this world is stacked against you, turn it upside down and start exploiting the resources and the most powerful three ingredients of wealth building. That’s time is on your side to make the most of it.

Bo: And if you’re sitting out there like “well guys, I’m not 20, I’m 22, I’m 23,” we actually have a tool for you. Go to moneyguy.com/resources and you can play with our wealth multiplier tool where you can actually put in your age today and it will show you exactly what your wealth multiplier is. It’ll also show you how just a very small sum of money can get you from a starting point today all the way to a million dollars or all the way out to $2 million. So being too young is not an appropriate excuse to not invest. It should be one of the number one reasons why you start investing.

Investing Myth #2: I’m Too Old (6:44)

Bo: But Brian, let’s talk about now what about the other side of that?

Brian: Well, I just set a trap because now everybody who’s out there who’s not in their 20s and not even in their 30s is going to be like “see, this is why the system’s now stacked against me because I’m too old.” But guys, we have some realities for you. And this is one of those things that I covered in Millionaire Mission is that I don’t think that anybody is too old to put their money to work. But we did a really amazing thing. If you’re trying to look at this concept of buying your future time, do you realize the discounts that you have access to if you will just put a little bit of your hard-earned money—a little bit today for that great big deal tomorrow? The discount rate is still incredibly good even beyond your 40s.

Bo: That’s right. It’s not just a game for young people. We did an entire episode walking through this and even for someone who’s 40 years old, if you’re trying to buy a future living expense, you can get it on sale right now at 90%. Even someone who’s 45 can get that future year on sale at 85%. That’s how powerful investing and compound interest can be for you. So if you want to know more about that, you want to understand this concept of no matter what age you are, you can still buy your time, make sure you go check out that episode called Buy Back Your Time—how to buy and how to own your time. So you can neither be too young to invest nor too old to invest.

Investing Myth #3: I’m Too Broke (8:18)

Bo: Well Brian, there’s another one that we hear. Okay, I’m not—it’s not that I’m old and it’s not that I’m young. I’m just too broke. I don’t have any money. If I can’t be investing tens or hundreds of thousands of dollars, should I even be investing at all?

Brian: Well, and look, our system is strong, but it does have—if I was picking on us, it seems like when you tell people who are in their 20s, when they’re even their early 30s—when there’s—because there’s a reason we talk about the messy middle where you’re short on both time, you’re short on money, you feel like life is just whooping up on you. And then here we are, we come out of nowhere and we say “hey, you need to be saving and investing 20 to 25% of your gross income.” People just close the book. They shut it off. They say “these guys are ridiculous.” So that’s why look, I’m going to tell you if you’re just now starting out, don’t let that turn you off. What I would encourage you to do—yes, that is aspirational. I just want you to do something. That’s right. Because something is better than nothing.

The Power of 1% More (9:15)

Brian: And that’s why we’ve even created resources and illustrations—we’ll show if you just start off with 1%. Because remember, I got motivated to really get my life in order when I had a teacher tell me that $100 a month could potentially become a million dollars for me in retirement. It changed my entire outlook towards life. And that’s why we’ve also created a resource that says if you can just save 1% more, look at how much this is going to do for your future self. So do not sleep on this opportunity. So you don’t have to have a ton of money. You just need something and you can take that something and put it to work for you.

Investing Myth #4: I Don’t Know Enough (9:52)

Bo: But maybe now you’re saying “okay, well I hear all these things, guys, but you know, the reason that I can’t invest—I just don’t know enough. I’m not educated enough. I didn’t get a finance degree. I’ve never been exposed to personal finances.” Well don’t you worry. That’s exactly what we’re here for. That’s exactly what The Money Guy Show does. And you may be amazed to find out that building wealth is remarkably simple. Now it’s not easy because there are some behavioral things you have to do. But it doesn’t have to be complicated. It doesn’t have to be rocket science. And we have an entire enterprise here devoted to helping you do money better.

Brian: Well, here’s the cool thing. You don’t—it doesn’t have to be perfect. You just have to have a curiosity and an aptitude to want to improve yourself. Because I think about my scenario. We both come from humble beginnings. I knew nothing about money when I was starting out other than this rapid desire to improve myself. I had this accounting degree from Georgia. But look, I even made a lot of mistakes myself. My first investment ever—I think about the 20-something version of myself who went to an insurance salesman, bought a B-share mutual fund, which is—anybody knows, I think they pretty much have outlawed these things. You don’t see B-shares anywhere anymore because they were just structured so horribly. So even somebody who just starts out making mistakes doesn’t mean you have to stay that way and you can improve and get better. And we tried to create a system as well as resources so you don’t have to even fall into the same traps I did. And that’s why if you go out to moneyguy.com/resources, we will absolutely load you up because I like that we cut through the noise of life whereas so many people are trying to sell you products. There’s so many people trying to sell you a shortcut and we’re actually out there ringing the bell telling people no, look, we’re actually going to share the path to wealth building, the real path. It’s going to be slow, steady work, but it is going to do more than you could ever think because this thing’s going to eventually get to a point where it’s growing exponentially.

What Should I Invest In? (11:56)

Bo: All right, so we’ve laid out the case for who should invest. It’s everybody. And we’ve gotten rid of all of your excuses. So now the natural next question you’re going to ask is, “All right, well what do I invest in?” I mean, how do I do this? If I open up TikTok or I open up Instagram, there’s millions of different things for me to invest in. And we want to break it down for you. We want to make it very, very simple.

Stocks, Bonds, and Funds (12:15)

Bo: When it comes to investing, when it comes to investing in liquid markets, the majority of what you’re going to see is going to be broken into some distinct categories. Number one, you can invest in stocks. This is just companies you’ve heard of. These are Apples, Nvidias, Home Depots. You can go buy a share in that corporation. You go buy one share of stock and you immediately become an owner of that corporation. Pretty easy, pretty plain, pretty simple. The other thing you can do is you can go invest in bonds. All bonds are is they are loan obligations to either a company or a government or an entity where you’re essentially loaning them some of your money. They’re going to pay you back an interest payment on that money and then at the end of whatever that term is, you get your money back. So it’s basically you turn into a loan shark. Not exactly, but you kind of turn into the bank yourself. That’s the way the bond works.

Brian: Well, everybody—I think a lot of people have heard the vocabulary of stocks and bonds, but they say “yeah, but okay.” Somebody tells me—because we are guilty of this—we will show all kinds of projections and we’ll say “look, if you make between 7 to 10% rate of return, you’ll do well.” How do you do that? I mean, which stock do I go buy? Which bond do I go buy?

Mutual Funds and ETFs (13:22)

Brian: Well, that brings in—we actually think there’s even a better way because there’s a third pot, which is mutual funds and ETFs. And here’s what I like about mutual funds and ETFs is that when you start off, it might be like I was in the beginning—$100 a month. Well, are you going to go buy one individual stock with $100? Is that even possible? Or bonds? I mean, which bond do you go buy with $100? That’s what I like about mutual funds and ETFs. It lets you buy into baskets—literally we’ll put this visual on there—of holdings with your small sum of money. So it really gives you diversification, gives you lots of power with your money. This is an incredible thing. But even with that, now that we’ve shown you these basic components—stocks, bonds, mutual funds, ETFs—okay, you guys gave me some definitions. Good for you. You’re almost as good as Webster. But what does this mean for how do I do this? What’s the actual investment that I should be buying?

Index Funds (14:22)

Bo: Yeah. Inside of that mutual fund and ETF type of investment, there’s a type of investment that we absolutely love. It gets us so excited and it’s just called an index fund. And all this is is a specific type of mutual fund or a specific type of ETF that tracks a market index. Meaning that it’s trying to model or mimic a certain segment of the market. The one that we talk about all the time that you hear quoted all the time is the S&P 500 index. All that’s doing is it’s a mutual fund or an ETF that tracks the 500 largest companies, largest stocks in this country. So rather than you having to go out and buy all 500 of them, you can just buy one single holding, you get exposure to all 500 of those stocks.

Why Index Funds? (15:07)

Brian: Well, I feel like I need to express my love affair with index funds. Why do I like index funds so much? Because they really do—it is the solution to a lot of the problems I had when I first started investing. First of all, it’s low cost. You don’t see index funds typically with high commissions because somebody’s selling them for them. You don’t see them with high internal expenses. Here’s the other thing. Because they’re an index fund, because it’s just once a year or twice a year they’re adding or removing funds, it’s not like there’s somebody in there actively trading trying to beat the market. There’s not a lot of what’s called turnover. So these things are very tax efficient.

Brian: And then what I like is instead of all this noise that—especially in the beginning because we’ve all watched movies and so forth and we’re like “man”—or you maybe now it’s not movies, that’s an old man thing. Social media is telling you crypto or all these other shortcuts to your wealth building. And then here’s this thing—an index fund—that says instead of trying to beat the market, why not just be the market. I mean that is the powerful component because we love the value of what indexes are doing because now you can with one decision get access to this whole basket of holdings so that now that $100 a month, it’s actually starting to take shape into an actual investment that’s actually got potential to grow with the market and have success. And we actually have some numbers that show you what this can do and become in the future.

S&P 500 Historical Performance (16:34)

Bo: Yeah, I mentioned earlier the S&P 500. Well, if you just think about “okay, instead of going out there and trying to pick which stocks are going to be the best performers and how do I do that,” I just were to go buy the S&P 500. If you look at the performance of the total return—so that’s the capital appreciation along with the dividends that are paid from the S&P—starting in January of 2000 all the way out through the end of 2024, if you were just buying that index over that time period, you would have experienced a 538% rate of return. Just buying that one index, not having a finance degree, not having to pour through financials, not having to try and figure out which stock to buy. Just being the market allowed you to have over a 530% rate of return.

Market Downturns Look Like Blips (17:07)

Brian: There’s several things—before we come off this slide, I can’t help but with a little bit of tangent education—is that everybody’s heard of the Great Recession. If you have the ability whether you’re on YouTube or Spotify and you see this chart that we put up here, do you see how—yes, you can look at this and see 2008 was down—but doesn’t it just look like a historic blip? And what’s funny is when in doubt, zoom out. When we look at what happens with the pandemic—from the pandemic down to 2022—you see right now it looks like a pretty good valley, another blip. Time is going to make this once again another blip.

Target Retirement Funds (17:55)

Brian: But still, some of you—and look, I’m never going to get mad if somebody just says “you know what, these guys said the S&P 500.” I don’t get frustrated. I don’t get disappointed when I see somebody’s just out there buying the S&P 500. But you’re going to, as you get into your journey with wealth building, you’re going to say “yeah, but there’s a big difference between a 20-year-old investor. There’s a big difference between a 40-year-old investor, and there’s a difference between a 60-year-old investor. You have different needs from your money.” So that brings in this component of balancing out the risk and reward. We’re going to probably need some diversification. Sure, that sounds complicated. So is there anything that cuts through the noise of that? Yes. The S&P 500 is great. How does that now integrate into diversification because I’m not exactly a spring chicken anymore? I’m 45 years old and probably retiring in the next 15 years. I probably need to mix this thing up a little bit.

Bo: Yeah, the financial world has actually made it remarkably easy with the introduction of target retirement index funds. And these are simply baskets of index funds that are targeted towards a specific retirement date. So if you think that you’re going to need your money and you’re going to retire in the year 2050, then you would just go buy the target retirement index 2050 fund and you can set it and forget it. Right now while you are young, it’ll be more aggressive and when you’re further away from retirement, you’ll have more stocks and more equities. But then as you move through time, the allocation will automatically change for you. You’re not having to like figure out what to buy, figure out what to sell, what to trade—it’s going to naturally do it for you.

Glide Paths (19:32)

Bo: And the way that they do these is all the target retirement funds of the index variety have what’s known as a glide path where essentially whether you are someone who is a 20-year-old, 40-year-old, or 60-year-old, if you buy the appropriate target retirement fund, you will end up in an asset allocation that most closely matches a reasonable risk tolerance for where you are in your journey.

Brian: Yeah. What I like about these is I once again—I take myself back to my younger self where I was kind of—I just—I had a lot of curiosity and I had a desire to make myself better, but I just didn’t have all the knowledge. As I’ve shared earlier, I’m not going to get mad at you if you have the S&P 500, but there is going to come a point where you’re going to say “man, I wish I could just figure out some resource or tool where it still allowed me to take advantage of all the benefits of index investing. I like that low cost. I like the tax efficiency. But if I could just figure out how much I could save and invest—because I know in the beginning I’ve heard these guys mention my savings rate is so much more valuable than even what I’m choosing the investment. So if there was something that would let me answer the question ‘how much can I save and when do I need it’ and then they handle the heavy lift—that could be a blessing in the beginning.”

Brian: Now look, once you’re a millionaire and you’ve got—you’re getting close to being a millionaire—without a doubt, diversification, there’s ways to maximize that. But I love index variety versions of target retirement funds for that person that’s new to this journey, wants to get the benefits of diversification without all the chaos, and then get the benefits of index investing. There is a solution worth sharing. And that’s why we kind of lay it out there for you if you’re looking for that all-in-one type option.

Where Do I Invest? (21:14)

Bo: All right, Brian. We’ve talked about who should invest. We’ve talked about what you should invest in. Now let’s talk about another one. Where do I invest? And this one, frankly, can get kind of complicated. This seems a lot like an alphabet soup. Maybe you’ve heard of HSA, IRA, Roth IRA, 401(k), 457, 403(b). There are tons of acronyms, tons of numbers, tons of letters, and it can get very confusing. But we don’t think that it has to be. And we like to when we think about where to invest, we even have a structure in terms of how we think about those types of decisions.

Don’t Be Overwhelmed (21:48)

Brian: First, because we’re about to throw a lot at you, I just want you to buckle in. But I’m going to tell you—take a deep breath. There’s actually—and if you get overwhelmed by all these three buckets and all the things that are going to be on this slide, remember there is a better way to do money. So if you ever feel overwhelmed by what we’re sharing, don’t worry, it’s built into the Financial Order of Operations. You can always go back to the resource of moneyguy.com/resources. Look at the Financial Order of Operations to figure out—because it’s going to outline, it’s naturally built into the system—these three buckets. Or if you want to have the origin story, don’t sleep on Millionaire Mission because this can help you out as well. But Bo, let’s jump into—and I think it’s kind of when we were doing the content meeting on this, I was shocked we started with our favorite child. Usually you build up and you say “let’s go with the child that’s good sometimes, but then a lot of times they give us some troubles or they have some setbacks.” We started right out of the gate with our favorite bucket of the three, and that’s our tax-free bucket.

Bucket #1: Tax-Free (22:52)

Bo: That’s right. These accounts, the way that we break them into buckets is how they’re treated from a tax standpoint. So the very first one is tax-free. These are things like your Roth 401(k). So if you’re getting your employer match and you’re in step two of the Financial Order of Operations, but you’re making Roth contributions, that would be going into the tax-free bucket. Your Roth IRA is in the tax-free bucket. Your Roth 403(b) is in the tax-free bucket. Your Roth 457 is in the tax-free bucket. And even your health savings account—triple tax advantage. All of these accounts are tax-free accounts, meaning when you put money in, you don’t get a tax deduction except for the HSA. The money grows tax deferred. And then when you go to pull that money out, so long as you make a qualified withdrawal, those dollars are completely tax-free forever. So these are amazing accounts, bucket, structure, strategies—great places to begin investing your dollars.

Brian: Yeah, this is why, like I said, you’re not supposed to name your favorite child. This is our favorite child because it is so valuable that the government restricts who can participate. They restrict how much you can participate. So if you have the opportunity to invest in tax-free investments, please take advantage of this and then maximize the investments that you put in this. Because think about the fact—if you’ve got something that’s already tax-advantaged by the government and then you put the superpower of low-cost index type investments in here—man, oh man, some magical stuff for your future self is going to be cooking in the background. And this gets us really excited.

Bucket #2: Tax-Deferred (24:25)

Brian: Now let’s move on to the next bucket. So we’re still—this is tax-advantaged—tax-deferred. These are accounts that they do give you a deduction when you make the contribution. They do grow in a tax-deferred meaning that every year as it’s getting interest, as it’s getting dividends, as it’s getting capital appreciation, the government’s not going to be taxing on it. But unfortunately at some point in the future, usually your required minimum distribution age around 75, the government is going to start making you pull this money out to pay taxes. So it’s good. It’s just not tax-free good like that first bucket was.

Bo: So the types of accounts that fall in here—like traditional 401(k)s or traditional 403(b)s or traditional 457s or traditional IRAs—if you’re investing in one of those types of accounts, they’re going to be in the tax-deferred bucket.

Bucket #3: After-Tax (25:15)

Bo: And then the third bucket. Now this one is not tax-advantaged in the same way that the other two are, but there still are some tax advantages to it. These are just regular old brokerage accounts. This is like an individual account, a joint account. Maybe you have a stock account from work or you have a trust account that you’ve established. These are all after-tax accounts that you can invest in, and they don’t have the same age limit restrictions like some of the tax-free and tax-deferred buckets.

How to Decide: Pre-Tax vs. Roth (25:42)

Bo: So you may be sitting there saying, “Okay guys, you’ve told me where my options are, but how do I decide? How do I know which one makes the most sense for me to put the money into?” Well, the reason we separated them into their different tax treatments is the way that you decide which one makes sense is actually dependent upon your tax situation. And that’s how we recommend you go about deciding between pre-tax or Roth.

Brian: Yeah, this is one—look, without a doubt, most people, we love the Roth feature. But there’s a group of you—we’ve seen the survey results on who’s out there in the financial mutant audience, and a lot of you guys, you make a great income. So you’re in higher tax brackets. If you’re not paying attention to what tax bracket you’re in with your savings and investment strategy, you might be making a mistake because there might be a better opportunity. If you’re in your peak earning years where—and you retire early, maybe you could do Roth conversions and some other great planning opportunities. So that’s why we’ve tried to put together some guidelines. Now this is not an end-all because there’s going to be a lot of other factors that come in, but we at least have some good guidelines on how do you know should you do in your 401(k) at work or your 403(b)—should you be pre-tax and take the deduction now or should you do the tax-free Roth option?

Tax Bracket Guidelines (26:58)

Brian: So here’s what we’ve laid out. First of all, you got to know what is your combined marginal tax rate. But what is a marginal tax rate?

Bo: Marginal tax rate is just the tax rate that you pay on your next dollar of income. So when you look at your taxable income on your tax return and you go to the tax table and you see where that falls, that’s going to be your marginal tax bracket. So if you take your federal marginal tax bracket and you take your state marginal tax bracket and you add them together and the sum of those two is below 25%, you might be a great candidate for Roth contributions. You may want to consider that. If you add those two marginal tax brackets up and you’re somewhere between 25% and 30%, it gets a little more nuanced between should I do pre-tax or should I do Roth. And you have to think about things like your other available account structure and your unique timeline and your unique goals. But if you are someone who is a higher income individual and you look at your marginal federal rate and your marginal state rate and combined they’re greater than 30%, then there’s a really good chance you ought to be doing pre-tax contributions. Because every dollar that you can save into that IRA or into that 401(k) or into that 403(b) can save you 30 cents in taxes. You can think about it like a 30% imputed rate of return and that is such an attractive benefit. It’s really hard to make the decision to forego taking advantage of that today.

Other Factors to Consider (28:21)

Brian: Look, just putting a little disclaimer out there. Obviously there’s factors that influence this. If you’re somebody who’s under 30 years of age, your age and the years, the decades of tax-free growth is going to obviously push that needle towards Roth even if your tax bracket’s going up. But then there’s other people—I think about we’ve had 60-something year-olds who have come to us and said “hey Brian, I know that I’m in a high tax bracket, but I’m also now thinking about estate or legacy and I want to pay it forward and give. What’s the best type of asset for my beneficiaries to inherit and then continue to grow tax-free?” Well there could be some Roth planning even if somebody’s in a higher tax bracket. But I still think that this tax efficiency—pre-tax versus Roth—this is a great first step for you figuring out how you should navigate this when you’re looking at it.

When Do I Invest? (29:10)

Bo: All right Brian, so now let’s move on to the next one. This one is an interesting—it’s when do I invest? And this is one I think that trips up most people. I think most people screw this up. And this might be the number one question that most often gets answered incorrectly in our minds and prevents us from ultimately going on our wealth building journey.

Don’t Time the Market Based on Politics (29:30)

Brian: Yeah, us as humans, I got to tell you, I love that critical thinking element of the human brain that allows us—we invented the wheel, discovered fire, and now here we are, we have artificial intelligence, all these other things of the law of accelerating returns that makes it so exciting to be an investor, to also be alive. But man, oh man, can we come up with excuses that derail us from doing great things for ourselves. So a lot of times we will say—let me just go ahead and tell you something that I see right now. We get calls from people saying “Brian, is this really the right time to be investing?” Because did you see who’s in office? And by the way, it cuts both ways. I mean, I’ve had clients every election cycle I’ve been through. And that’s why I always tell people, do not base your financial decisions based upon which cable channel you’re watching. If you’re Fox News, CNN, MSNBC, they are trying to keep your eyeballs and your ears. They don’t necessarily care about your wallet and your purse. So be careful trying to make timing decisions or when you should invest based upon political thoughts.

Market Performance by Political Party (30:41)

Bo: Yeah. So if you’re asking the question “well, is there a benefit depending on who’s in office relative to markets?” We think that history is a great tutor. So we ought to look back at how have the markets performed during different segments of our political environment. And when you look at this going all the way back to the 1970s, you can see where we had Democratic presidents and you can see where we had Republican presidents and you can see where there were Congresses that were Democrats and you can see where there were Congresses and Republicans. And what you notice is that it is wildly consistent that the markets tend not to care a whole lot about who is in office. And they tend to be pretty resilient no matter which party is in office. So when it comes time for you to make your investment decision and think about how you’re going to go about building your wealth, should you consider who’s in office when you make the decision to either invest or not invest? We say absolutely not.

Brian: Yeah. Don’t let the political thoughts that you have—that might be a blind spot for you. So be careful on that because the markets—this is going to be a good thing—are very much nonpartisan.

Don’t Time Market Highs or Lows (31:43)

Brian: Okay, here’s the next thing. What if you’re worried about what markets will or won’t do? Let me give you some examples on this, Bo. If markets are at all-time highs—ooh, that must be scary. People be like “I don’t want to put a dollar in any money into this investment because man, aren’t I buying at the top? I’ve always heard the saying of buy low, sell high, and here if the markets are all-time high, I’m really screwing this up.” Or what about if markets are literally getting their teeth kicked in? This seems like “why would I want to invest in something that’s getting beat up right now? This seems like a bad idea too.” Do you see how this cuts both ways? If you’re letting your emotions set when you invest, you’re really kind of going to cloud up your judgment on how you’re going to do this as well.

Case Study: Panicking Pat vs. Manny the Mutant (32:30)

Bo: And if you don’t believe that this can be significant, we want to walk you through a case study to kind of highlight how impactful this can be. So let’s consider an investor. Let’s consider Panicking Pat. Panicking Pat has $10,000 initially that he wants to invest. And when he starts investing, in addition to that $10,000, he’s going to invest $583 a month. He’s just going to max out his Roth IRA and he’s going to buy the S&P 500. So he’s following most of what we say—buy an index, save consistently, begin building wealth. But whenever there’s a down year, Panicking Pat gets really, really nervous and he says “you know what? I’m going to sell and I’m just going to wait for things to improve.” So he sells after that down year and then he sits in cash waiting for the market to recover. How many times have you heard this? “Ooh, it’s scary right now. It seems that the sky is falling. I’m just going to sit on the sidelines until I feel a little bit better about things.” So that’s investor number one, Panicking Pat. But then we have old faithful investor number two. Manny the Mutant—this is what Manny says. Manny says “you know what? I’m going to do the same thing. I’m going to invest $10,000 initially and I’m going to max out my Roth IRA every year. I’m going to save $583 a month and I’m also going to buy the S&P 500, but I’m not going to try to time it. I’m just going to buy every single month. I’m not going to worry about what’s going on in the market. I’m not going to worry about who’s in office. I’m just going to keep buying.” Well, if both of these two investors were to invest from 1999 all the way through the end of 2024, Pat would have still accumulated $670,000. That’s awesome. Started with $10,000, maxed out a Roth, still got to almost three-quarters of a million. But when you compare that to Manny who was consistent and stayed true to the strategy that he was implementing, he ends up with almost double that amount—$1.25 million over the exact same time frame.

Time in the Market vs. Timing the Market (34:31)

Brian: I always tell people why—if you could find out doing it the easy way, the lazy way is better—why make it hard on yourself? Because there’s also a great historical slide that I always roll out when people are trying to tell me they figured out a better mousetrap on the timing. If you look at time in the market versus timing the market, look at this is some research that I put—this ended as of 2023. So 1988 all the way through 2023 looking at the growth of $10,000 invested in the S&P 500. If you just stay in the market the entire time, that $10,000 is now worth over $400,000—$418,000. If you just miss the five best days, $264,000. So five days from 1988 to 2023, there’s a lot of days in that time frame. Five days cost you $200,000. You missed 10 days—$191,000. If you miss 30 days—a month out of all these decades, you miss just one month—now instead of it being over $400,000, it’s down to $71,000. If you miss the best 50 days, it’s down to $31,000. Do you see how your emotions can literally betray you? Now I know this is an extreme thing and I know also the trolls will be like “what if you missed the worst days?” Well, nobody has the potential. There’s no way to say “I’m going to place the trade today to miss the worst day and then get right back in on the best.” What we’ve seen is what you need to do to actually be successful is just have a plan that takes this all out. So when you ask yourself “when do I invest?” The answer is easy. If you want to be successful, always be buying. ABB, baby. Always be buying. And you don’t have to outsmart yourself. You don’t have to make it any more complicated than that.

How Much Should I Invest? (36:25)

Bo: All right Brian. I’m sold. I’m out. I’m there. Here I am. Now let me answer the last question. Let me ask the last question. You’ve told me who should invest and what to invest in and where to invest and when to invest. What about the very last question? Now how much should I invest?

Brian: Now look, I’ve already kind of laid out some breadcrumbs throughout today’s show. If you’re young and you feel like money is just short, just do something. Just absolutely do something. Because just getting the ball rolling is going to be the most important thing. But then once you actually get in there and you start investing, now I want you to understand a simple fact and this is the breadcrumb I laid out earlier. Your savings rate is so much more important when you’re starting out than even what you’re investing in and the rate of return you’re making. So we try to tell people, let’s just get the ball rolling and then let’s focus on what you can control, which is your savings rate.

Case Study: Sal the Savant vs. Manny the Mutant (37:18)

Bo: I love it. And we said you want to see how powerful this is. You want to see this in a real life example. Again, let’s take two investors. Let’s take Sal the Savant who starts his career making $50,000 a year. Let’s assume that Sal gets a 3% annualized wage growth and is going to have a 10% savings rate. So going to be saving but not going to work towards the 25% that we talk about. But Sal is a Savant and Sal is an amazing stock picker. And because of that, Sal recognizes a 25% annualized rate of return. As a reminder, S&P 500 over the last something like 50, 60, 70 years has annualized like 11%. But Sal is better. Sal knows how to pick the winner. So Sal is going to make 25% every single year.

Brian: By the way, that’s so unrealistic. But let’s go ahead and just for the sake of education, let’s let the assumption flow through.

Bo: But now let’s look at our second investor. Again, back to Manny. Manny also has a $50,000 starting wage, 3% annualized wage growth. But Manny says “you know what? I’m not just going to save 10%. I’m actually going to save 25% of my gross income for the future and I’m only going to make 10%. I’m going to have a well-diversified portfolio buying low-cost index funds and I’m going to make 10%.” Do you realize if you just took these two investors with Sal making 25% every single year for the first 10 years of them investing, Manny is out in front. It takes Sal 10 years of making 25% every single year to make up for and compensate for how much lower his savings rate was than Manny’s. It’s why we say all the time that your savings rate early on in your journey is exponentially more important and more valuable than your rate of return.

Active vs. Passive Management (39:15)

Brian: By the way, this is so—because we did this on the extreme on purpose. Probably by year five or six the SEC is going to show up at Sal’s door and go “what inside information do you have?” Because if you just look at active managers versus passive index investing, there’s a reason that index investors outperform—I mean it’s in the 90 percentile plus. And then here’s what those stats—because there’s a human condition where we always have this overconfidence where we say “well I’m going to go buy the investment that’s in the 10% because 10% of the investments outperform the market.” But then there’s research out there from S&P and elsewhere. It says the consistency of the 10% is never the same investments. There’s a lot of variation on what outperforms from year to year. So to find an investor that can outperform for 10-plus years, it’s just an outlier.

How Much Should You Save? (40:06)

Brian: So that’s why I would tell you at the end of the day, if you come to how much should I save—because every one of you is going to be a little different. You’re going to have different goals. You’re going to have different ages. But don’t worry, we’ve still created a great deliverable and a resource for you. If you just go to moneyguy.com/resources, this now lets you lay over what’s your age, what’s the savings rate you’re considering, and it will tell you how much of a replacement you could potentially have at retirement. So please don’t sleep on this. Go check out our how much should I save resource so you can find out—maybe if you’re in your 20s maybe 15% is going to rock it and knock it out of the park. But maybe you’re 40 years of age and you’re just starting, you’re going to say “okay, it looks like this 25%—I see why these guys landed on that as an aspirational savings rate. It looks like that is where the army of dollars needs to be so they can work harder than I am with my back, my brain, and even my hands.”

Closing: Start Today (40:59)

Bo: That’s the whole idea. Investing is this wonderful tool where we can take some of our hard-earned dollars today. We can put them to work and we can actually have our money work even harder than we do. It does not have to be complicated. It does not require a finance degree. It does not require a lot of mental energy. What it does require is a little bit of discipline and tuning out the noise. And if you can start your investing journey today, there’s a great chance that your future self will thank you.

Brian: So here’s where we are. There’s so much content that gets you motivated. And yes, I think we checked the box on trying to get you motivated. But there’s a lot of content that I feel like it’s lacking on the how, the what, and the when, the where. We just loaded you up with every bit of that. And we can do that. We give you all this free information. And just so you know, it’s consolidated at moneyguy.com/resources. But there’s going to be some of you who catch this and you say “that’s going to be great for my niece, my nephew, or even my grandkids. But my situation is even more complex than what these guys are showing.”

The Abundance Cycle (42:03)

Brian: Don’t worry because that’s the abundance cycle. We give you the basics so it creates the level of success that this thing turns—your simple financial life—success just naturally creates complexity. And when you get to that point where you’re trying to figure out how do I do this the best way possible now that my life has gone complex, that’s the graduation point for the abundance cycle. And that’s where we’ll leave the lights on for you. That’s where you can consider working with your own fee-only wealth management with one of our advisors and we’ll be there for you because here’s the key takeaway I want you to know. You can either own your financial life or your financial life will own you. I’m your host Brian Preston, Mr. Bo Hanson, Money Guy team out.