Financial Advisors Correct the Internet (Part 2)

Financial Advisors Correct the Internet (Part 2) (0:00)

Brian: If you’re worried the internet’s lying to you, never fear. We’re here to correct the internet.

Bo: I am so excited to correct the internet today. Here we go.

Clip #1: The Nancy Pelosi ETF (0:09)

[Clip] I bought into the Pelosi fund. It’s doing really well.

[Clip] I bet it is.

[Clip] I only put $1,000 in there, but it’s beating my own money, guys. It’s crazy that you could know, oh, we’re going to do this big deal with AI chips, Nvidia makes AI chips, I’m just going to buy a ton of Nvidia stock, and then boom, we pass this thing. Hey, look at that. 500% increase. Nancy Pelosi is the scapegoat, but if you look, it’s red, blue, across the line. They’re all trading, making tons of money. They all go into Congress broke. They all come out rich on a $100,000 a year salary.

Brian: It is amazing that there’s not more restrictions on these elected officials essentially profiting from knowledge, because insider trading through what we do has a lot more restrictions than what our elected officials have to deal with.

Bo: Yeah, insider trading is illegal, but folks getting called on it and actually being able to track down insider trading is not clear-cut black and white. That is a little bit frustrating for everyday investors. Now, what I think is the better learning thing here is that oftentimes you can come up with an idea and you’re like, “Oh, I’m going to go buy this fund.” Maybe it’s some fund that tracks a politician, or maybe it’s some other fund, some high-flyer, some growth, some tech thing. And all of a sudden you do it and you get a 20%, 30%, 40% rate of return. Maybe you participate in an IPO of a stock that comes out and all of a sudden it shoots through the roof. Holy cow, I’m a genius. I’ve got to double down. I figured this out. And lo and behold, if you give it enough time, time will expose all fools. And if you give it enough time, you’ll recognize that maybe that strategy I figured out, maybe that thing I thought was this magic bullet that was going to make me all this money, wasn’t quite as good as I thought. And maybe the thing I ought to be doing with my dollars is the boring, slow, consistent, low-cost index investing that’s proven to build millionaire after millionaire after millionaire through time.

Brian: Well, and even if you wanted to use this strategy, Nancy’s retiring, so just stick with the S&P 500. That’s an applause line.

Clip #2: Robert Kiyosaki “Savers Are Losers” (2:16)

[Clip] I don’t think people truly understand what Robert Kiyosaki means by savers are losers. If you’re getting your feelings hurt, you probably need to listen up. The advice you’re listening to right now is advice that was given to you before the iPhone even came out. You save $10,000. It’s sitting in your account. Inflation, let’s call it 3%. Money debasement, let’s call it 10%. The hurdle rate is 13% for you to break even. Last time I checked, high-yield savings accounts aren’t paying 14%. So you think you’re getting a good deal, but you’re already getting taxed on that interest anyway. So, rug pull. The S&P 500’s pretty decent. It does just around 13%. All seriousness though, look into assets that grow over 13% in a year, or find a way to exponentially increase your income over 13% in a year, or you can start a business and exponentially increase your income.

Bo: What was the 10% money debasement thing?

Brian: I don’t know. He threw so much in that cookie jar that I don’t even know what the point was. Look, I thought he was going down the solid path where basically you can’t just let your money sit in cash because inflation’s going to eat it alive over the long term. But then when he started throwing tomatoes at the S&P 500, I mean, we have shown over and over and we even survey our millionaire clients — being consistent and starting early even with things like the S&P 500 is going to make you fabulously wealthy and successful over the long term. So to hear somebody poo poo it really kind of disappoints me. Maybe you can do a one-off and make greater than 13% in a year, but consistently? No, get out of here.

Bo: Yeah, that’s what I was going to say. It’s not untrue that entrepreneurship and investing in small business and that sort of thing can have outsized returns, but they are outsized opportunity with low probability of success. But you know what has a high probability of success and also a lot of opportunity? Investing in low-cost index funds like the S&P 500. Yes, inflation will erode your money. But if you can earn 8 to 11%, which is what the S&P makes on average over the long term, then I’m going to argue your dollars are not just going to keep up with inflation. They will actually grow through time, increasing your purchasing power greater than the rate of inflation, which is what you want to do as you build towards financial independence.

Brian: And if he was kind of implying real estate, because Kiyosaki is very pro real estate, with leveraged debt, guys, if you do that too early, all you’ve got to do is play the wonderful game of big banks taking from little pockets when the market goes bad and you don’t have other people’s money to pay the rent. So make sure if you’re going to do real estate, we love real estate and we do real estate, just have deep enough pockets that you can survive those bad moments because they will come your way while you’re doing real estate.

Clip #3: What Financial Advisors Actually Do With Your Money (5:10)

[Clip] Here is what a financial advisor would likely do with your money if you gave them $200 a month to invest. First thing they would do is open up a Roth IRA for you. This would just be the investment account. Now that $200 would go into that account, but it would actually get split into three different buckets. The first bucket would be $120. The second bucket would be $50. And the last bucket would be $30. They would take that $120, the bulk of it, and basically put it into S&P 500 index funds, things like VTI for example. They would take the $50 and invest it likely into international index funds, VXUS as an example. The last $30 they would probably put into something more aggressive, something with higher risk, as an example, QQQM. They would just automate this entire process by connecting your bank account, setting up an automatic withdrawal of $200, and then automatic purchases of all these index funds in these exact amounts. If you did this from age 30 to 65, at the end you’d end up with about $360,000. Not bad. Here’s the thing. If you did this yourself, you’d actually have closer to $458,000 just because you would have to pay them about a 1% fee every single year.

Bo: I agree with everything, and I mean literally everything that this guy said. If you’re hiring a financial advisor and all that financial advisor is doing for you is opening up a Roth IRA, having you deposit $200, and auto-investing that $200 across three different funds, yeah, you shouldn’t pay an advisor. That’s not the thing a financial advisor should be helping you with. And if you’re paying 1% for that type of service, you are likely overpaying. If you’re only getting investment advice from your advisor, that industry’s already been commoditized.

Brian: You do financial planning when your life gets complicated. When you actually get to a situation where you don’t know what to do with your taxes, you don’t know what to do with your retirement plan, you don’t know what to do with your investments anymore because you know there are some efficiencies you can pick up. And also don’t forget, everybody always loves to quote the 1% rule, but when you’re worth two million, three million, five million, everything gets cheaper and cheaper. This is like buying toilet paper at Costco.

Bo: That’s the most frustrating part to me. Price is what you pay. Value is what you get. Every time you see one of these people line up what a financial advisor does, they assume that the financial advisor adds no additional value. Well, the argument would be if you can do it all on your own the exact same way and you get no value from what a financial advisor would provide, then don’t hire a financial advisor. An advisor ought to be able to add enough value to your financial life that not only does it justify the fee, but you are in a better place because of it. Price is what you pay. Value is what you receive.

Brian: Every one of our clients can vote with their feet. By that, what I mean is that we don’t do any proprietary products. We’re using index funds. We’re using ETFs, exactly what he covered. So you have to ask yourself, why in the world are all these millionaires not leaving? We even lead with it in the initial signing-up conversation. Look, if you don’t like this after a year, if I can’t do these three things I told you I can do, leave. And they don’t.

Clip #4: The 3 Biggest Money Mistakes in Your 20s (8:25)

[Clip] You’ll never get rich in your 20s if you keep wasting money on these three things. First is your lifestyle. Most people make it, spend it, make it, spend it, and have nothing to show for it. Second, a house. Most people in their 20s aren’t married, so they don’t need to buy a family home. Instead, buy rental properties and make some passive income. Third is a car. Most people finance a luxury vehicle with money they don’t have to impress people they don’t even like. Instead, buy a cheap secondhand car and you’ll have the last laugh.

Bo: I love one. I love three. I don’t not love two.

Brian: I would just put a note on it. I would house hack it.

Bo: Yeah, I love that. That’s a great example.

Brian: House hacking is a great alternative to telling people to jump right into what in our system is Step 8 of the Financial Order of Operations to get into real estate investing. I think what I’d rather you do is probably around step four when you’re trying to buy your own primary residence. Why not try to find a duplex, a quadplex, or something in your area? Because not only are you going to use other people’s money to pay your own mortgage, but the banks, because you’re living in that house, are going to give you more favorable underwriting and a more favorable interest rate. It’s just a better deal all around. Don’t just jump into the deep end of real estate when there are other ways in between.

Bo: When you think about one and three, buying into lifestyle creep or buying luxury vehicles are often things that you do to impress people whose opinions do not matter. Don’t waste your money doing those things. Only spend money on things that you truly value. Don’t worry about what the world around you thinks.

Clip #5: “$30 Million in Debt” Real Estate Strategy (10:01)

[Clip] We are in $30 million worth of debt, which means we owe banks $145,000 every single month in mortgage payments. Now let me explain to you why that’s a good thing and why it creates massive wealth for me. That $30 million worth of debt allows me to own $50 million worth of real estate. So that’s $20 million worth of equity that I would not have if I was not in that $30 million worth of debt. But on top of that, that debt owns real estate assets. And those real estate assets bring in over $350,000 in rent every single month, which of course is more than my $145,000 in mortgage payments plus all owning expenses, plus positive tax-free cash flow. And if you want to learn how to do this, this is exactly how Dave Ramsey went bankrupt back in the 80s. He was way overleveraged. And all it takes is another COVID to wipe this guy out completely where the government’s like, “You can’t evict anybody and they’re not going to pay rent and you’re going to like it.” Meanwhile, the mortgage companies and lenders don’t care. They’re going to collect. And so this guy is not taking into account risk whatsoever. And it drives me crazy.

Bo: I don’t disagree with what George is saying there because if you are highly leveraged and you have no financial foundation to fall back on when COVID happens or when the great recession happens or when one of those things happens, it can cause you to go belly up. That’s why if you are going to invest in real estate and you are going to take on debt, you better make sure that you are deep-pocketed enough that you can weather those financial storms.

Brian: Well, the team has taken my financial sidearm away. But there’s a big difference between taking down this debt pre-2020 or even 2021 when you could get interest rates in the 3% range or less even on some commercial property versus right now where you’re probably going to be at 6% or greater. So for you to think that you’re going to get the exact same return as somebody who might have done this five to six years ago might be putting yourself in a bad situation. Because the other people’s money issue, not only from a risk perspective, but you just might have a bad deal from what the property is even worth.

Bo: Yeah. And let’s not sleep on the fact that he said he had $50 million of assets with $30 million of debt. That’s $20 million of equity that he has in those assets. Most people who want to get into real estate, who want to start on this path, don’t get to start with $20 million of equity. They want to borrow as much as they can and put as little down as possible. If you’re playing that game, there’s a very good chance you’re going to get yourself into a very scary situation.

Clip #6: Whole Life Insurance and Infinite Banking (12:44)

[Clip] Here’s a secret I learned from rich people that took me forever to understand, but I’m going to explain it to you like you’re a fifth grader. This is going to blow your mind. So this is using a whole life insurance policy as your own bank essentially. So if you had $30,000 saved and you put it in a bank, you’d earn 1% interest. Over 10 years, it’s $33,000. It’s like nothing, right? Well, if you wanted to buy a car for $30,000, you take that money out of the bank and then your 1% would go to zero. This is why banks are rich and we’re not. Now, a whole life insurance policy, when you put that $30,000 into a policy, it earns regular market return. So 10% interest, power of compound interest. You’ve probably heard this before, right? 10% interest for 10 years turns your 30K into 81K. The kicker is when you want to buy that car, you borrow the money out of the policy and it still gains interest while you’re paying it back to yourself.

Brian: There’s just a lot wrong. Where’s the cost of the insurance? There are a lot of hands in the cookie jar when you’re buying insurance products. There’s the cost of the insurance. There are the agents selling you the insurance. And 10%? When’s the last time you reviewed a policy that consistently made 10%?

Bo: Let’s go down this path and say that you did do the $30,000 in the policy and you did earn 10% and it turned into $100,000. Here’s what I want you to do. I want you to go buy a $100,000 car or a $100,000 beach house. If you pull all the cash value out of that policy, you know what you have to do? You have to then make sure that every single year you are putting enough back into that policy to cover the cost of insurance so that the policy does not lapse and create a taxable event for you. If you don’t have the cash value in there to sustain that, then you have to put the money in. And every year you get older and older and older, the life insurance gets more and more expensive. It is not a free lunch like these infinite banking people try to lay out. It does not work the way that he described.

Brian: Anybody who says they’ve created a better mousetrap but it’s got a lot of fees and commissions, you have to scratch your head and go, something’s just not adding up here.

Clip #7: Are Kids Bad for Financial Independence? (14:48)

[Clip] Children are a lifestyle choice as much as they are a financial choice. I always have people telling me it’s easier for me to retire because I don’t have kids. And yeah, it’s true. My life is so much easier. I get to spend my entire evenings working on my business. I don’t have to wait in the school pickup and drop-off line. I don’t have to feed anyone except myself. I get to sleep in every single weekend. I don’t have to pay for daycare. I don’t have to save for someone else’s education. I get to focus on my financial independence and my happiness first every single day. That was an intentional choice I made because I want to live a certain life, and children would quite frankly ruin the life that I want to live. Does that mean I don’t like kids? No. I love kids. If life wasn’t such a capitalist hellscape, I would consider adoption. But I just refuse to be trapped working forever raising the next generation of workers for this system. I want to get in and get out.

Bo: So that’s a choice. That’s an opinion. And I certainly don’t want to fault her for her opinion and her feelings around that. But I agree with you. It’s kind of sad. I have kids and I love my kids. Are they a burden sometimes? Absolutely. Are they expensive sometimes? Absolutely. Would I trade that for all of the money in the world? Not a chance. I worry that there will be some fulfillment that does not happen if she thinks that just having money and having wealth and having freedom is all this life is about.

Brian: The thing that troubles me, and I want to share this and maybe this is too much sharing because y’all know I’m at this stage of life now where I kind of wish we’d had more kids because mine are starting to leave the house. And here’s the thing. I can go back in time and remember who I was back when I got married. I didn’t really like kids. I can still remember a moment where I was in public accounting. We were at a team outing and I was talking to some other male associates and a kid fell over and hurt their knee and everybody was making fun of us because we all just stared. We didn’t know what to do. I was like, “I’m not a kid person. I don’t know what to do to fix this kid.” And then I had my own children and holy cow. I was like, okay, I’m not a kid person but I love my kids. There is something really amazing that is in us that when you have your own children, it is a love that you just can’t fathom. I’ve never considered myself someone who needs to smell babies and do all this other stuff, but as soon as I had my own kids I was like, “Oh, I’m in on this.” I hate to hear so much pessimism drowning out what could be a lot of joy in this person’s life.

Clip #8: “$300 Million in Debt” Beats ETFs? (17:23)

[Clip] I borrowed $300 million. And I bought the best real estate in the world for pennies on the dollar. That’s how you get rich. Not by working hard and putting in a stupid 401(k) full of stocks and ETFs. Those are for the peasants. I don’t touch that garbage.

Bo: It’s rage baiting. It’s just not true that you cannot build wealth that way. And I would argue more millionaires have built wealth through index fund investing than by going $300 million in debt. Do you know how you get to the point where a bank will give you $300 million? You have to have enough success and enough financial foundation underneath you that you were a good bet for the bank underwriters.

The Better Way to Build Wealth (18:04)

Bo: The internet does not have your best interest at heart. But we believe that there is a better way to do money. It’s why we have all of our resources available at moneyguy.com/resources. All of our free tools, all of our calculators, free, because we want you to be able to do money better.

Brian: Our system is easy. We take all of our free stuff, create success. We don’t ask anything of you until you reach a level of success that it’s gotten complicated. Your simple life gets really complicated with success. And then I want you to remember who planted all the seeds, who gave you the knowledge. That’s how the abundance cycle works. We love to work with you. We work with people all across the country. I’m your host Brian, joined by Mr. Bo. Money team, out.