Financial Advisors Correct The Internet

Introduction – The Internet Needs to Be Set Straight (0:00)

Brian: I hear it’s time for some tough love because the internet needs to be set straight.

Bo: And Brian, I am so excited about this. But understand, if something is on the internet, it has to be right. True, right? Let’s see what we have today.

Don’t Buy the S&P 500, Buy a Ferrari (0:13)

Video Clip: If you want to get rich, don’t buy the S&P. Buy a Ferrari. Let me explain. Every time a supercar drives by, there is a cranky buy-and-hold investor saying, “If they only took that money and put it in the S&P 500 for 10 years, it would be worth millions.” This investor, while he thinks he sounds smart, is using the internet’s most favorite piece of fake data, the 12% annualized return in the S&P 500. The problem with this, and even if we cherry-picked, the real return is more like 7%. And that is backward looking into an environment that looks nothing like the one we’re in right now. Right now, multiples are trading around 21x. At high multiples, the forward return is more like 2 to 3%. In real terms, that’s 0% or even negative. That means that the biggest myth of getting rich from buy and hold is officially dead and you might as well just buy a Ferrari because the 458 Special returned 14% last year alone according to Hagerty. In this scenario, at least you’d have something cool to brag about. All right, I have to admit something. Am I really telling you to buy a Ferrari and assuming that the Ferrari price will appreciate into infinity? Of course not. But what I am telling you is if you expect to get rich from lazy buy-and-hold investing in an environment with high multiples and enormous chaos in the market, you are going to be sorely disappointed. You will never have Ferrari money. And I dare you. Go ask the guy in the Ferrari how he got rich. I can assure you he’s not going to say buy-and-hold investing.

Brian: Were you trying to read the fine print?

Bo: I was trying to read it. I couldn’t wait to see— I can’t wait to sell you some whole life insurance or I’ve got a strategy. I’ve got a system. I was waiting for what the solution was that he had in place for it.

Brian: First of all, the Ferrari, which he then came back and said, “No, I’m not really telling you to buy a Ferrari.” Of course not. The Ferraris are never— even if they appreciated the 14%, the transaction cost of going through the broker houses and other things to process or sell that type of vehicle is astronomical. So, we can go ahead and cut off the 14%. He assumed if you buy in whenever he recorded this, he said that the forward-looking price-to-earnings ratio was like 21. Sure. Things don’t stay that way. Is that just like at the day we’re recording this, the market has now had a 10% shift down? And if you’re always buying, you’re buying in throughout the process. We showed that there was actually a 25-year period during the Great Depression that the market was down during that entire time. But if you were buying every month, your annualized rate of return would have still been close to 11%. Set it and forget it. Yes, this is the path. Now believe me, if you go research where are the millionaires and how are they making their money, we ask our millionaire clients how they did it. It is through slow, steady wealth building through things like the S&P 500.

Bo: Even if you want to take— he said, oh, don’t use 12%, use 7%, which I think is a little low. A 7% annualized rate of return over an entire lifetime, over an entire working cycle, is going to build a lot of wealth if you can just stay consistent and put your money to work. He’s just flat out wrong.

Dave Ramsey on FICO Scores (3:06)

Dave: You are not successful when you have a high FICO score.

Brian: I have a high FICO score.

Dave: All it means is you gave the bank a whole bunch of interest.

Bo: I haven’t given the bank a bunch of interest.

Dave: That’s all a FICO score. Say I have an 800 FICO score. And when someone tells me that, I always say, I’m so sorry. It’s like saying I have high blood pressure and bragging about it. No, thank you. Your FICO score is not a measure of financial wealth or health. It’s a measure of how much you’ve been screwed.

Brian: Oh, come on, Dave.

Bo: Look, I consider Dave a friend. Now, he doesn’t— I don’t think he would say that I’m his friend, but I consider him a friend of mine. And I like a lot of what Dave does, but this is one of the ones that drives me the most nuts because I just think he could not be more wrong about that. Assuming that you have a high credit score, assuming that you’ve exhibited the fact that you can use credit responsibly, does not suggest that you’ve thrown away tons of interest, that it’s the I love debt score. It just shows that you were a reasonable and responsible financial decision maker. We’re successful. We have high credit scores. We’ve not given tons of interest to any bank.

Brian: I think Dave just flew too close to the sun. I mean, you think about earlier in his career, he ate debt like a cookie monster. And then all of a sudden realized, oh my gosh, this makes my belly hurt and bad things happen to me. So then he was like, oh no, because I was the cookie monster of debt, nobody should have debt. It would be a false thing to say that rich people or wealthy people don’t use debt, don’t have FICO scores that are high. Because by the way, you use this now for your utilities, your insurance. There’s all kind of things that go into having a good FICO score. It just means that you’re good with money and responsible with it. Dave wants you to treat debt like it’s lurking around the corner going to attack you at every street corner. And that’s just not the reality of the world or life that we live in.

Save $5 a Day, Then Buy a Business (4:58)

Video Clip: This is your reminder that saving $5 a day is $1,825 a year. Canceling your $20 Netflix subscription, well, that saves you $220 bucks a year. And skipping your weekly takeout, that saves you $2,000 a year. Then if you invest that $4,045 each year at an 8% average annual return, then in 45 years, you’ll have over $1.85 million. But the real pro move is investing in you. If you take that $4,045 and you learn a new skill, business buying, then you figure out how to do creative financing. You buy a business that makes $100,000 a year in profit. You buy it for $200k. I know you don’t have the money to do that, but you only put down 10 to 20%, which means you’re able to buy it for $10,000 to $20,000 down, and you just replaced a six-figure job to do it. Then you grow it to $200k in profit, and you’re able to then sell it for $400,000 to $600,000 because the more money you make, the higher the price. So yes, save, but also invest smarter.

Bo: Look, she’s not wrong, but she could have also said this. Hey, look, I can tell you how to win hundreds of millions of dollars. All you got to do is pick the right lottery numbers. You go buy the ticket before the numbers are pulled, and then once you have the right ticket with the right numbers on it, boom, you’re worth hundreds of millions of dollars. What she just said is, “Yeah, go buy a business with $100,000 of profit.” One, it’s got to be a very profitable business. And two, someone has to be willing to sell it. And then you have to be the one that was able to source it and find that business. And you got to be able to buy it. Then you got to be able to operate it. Then you got to be able to keep it. Then you got to be able to scale it and double it. It’s just not quite that easy. It does work that way, but it’s not that easy to find.

Brian: And by the way, if you’re going to be buying businesses for $100,000 to $200,000, these are not big businesses.

Bo: If it wasn’t topline revenue, just profit, so that’s even another thing, right? If it’s a $100,000 profit on a $10 million revenue business, that’s a razor-thin margin. So, you have to think through that as well.

Brian: So, I just don’t think that this is the easiest thing. I think there’s always a kernel of truth in these things, but this is not going to be how you build your first million dollars. I’m just being honest with you. I think that’s why we— there’s a better way to do money, the Financial Order of Operations. If you will do this and then start thinking about between steps seven and eight that you want to get into entrepreneurship, I’m all for it. But let’s make sure we’re funding the Roth IRA. Let’s make sure we have emergency reserves before we start swinging for the fences. It’s kind of like if you look at the hierarchy of investing, entrepreneurship would not be the first stone I would turn over. I was loving what she was saying because she was spot on and I was like, “Yeah, yeah, yeah— oh no. Oh no.” This went a little sideways.

Go on Game Shows Instead of Getting an MBA (7:41)

Video Clip: You need to completely rethink your personal financial strategies in your 20s. I know so many people who are trying to hop careers to gain salary. They’re going to get an MBA to boost their salary. You should not be doing this. You should be focusing all of your assets and time and money to get on as many game shows as possible to win money. We all watch Deal or No Deal, Family Feud, Survivor growing up. None of us actually go and do it. I called my friend yesterday, a very successful guy. I was like, “Have you tried going on Deal or No Deal?” And he was like, “No.” And I was like, “What are you doing? What are you doing with your time? Instead of having a million-dollar-a-year revenue business, you could just make a million dollars in one night by selecting the right suitcase.”

Brian: Definitely tongue in cheek.

Bo: I don’t see the lie.

Brian: He isn’t wrong. There was a documentary that is fascinating. You’d have to go find it on The Price is Right. And there was this very eccentric person that had noticed that The Price is Right was getting lazy with— they were using the same things over and over. So, he started tracking a spreadsheet of all the sponsored products that they were featuring. He got to the point where he could do showcase showdowns and get within like a hundred bucks, which means you get both of them. That is far from passive income to sit around and figure out if there’s an inefficiency in the game show circuit. I would tell you if you’re looking for an arbitrage situation, it’s understanding the value of your time when you’re young. So, if you can invest early and often, that’s the way you’re going to easily build wealth.

Grant Cardone – Use $50K to Buy a Business (9:11)

Video Clip: $50 grand. What would I do with $50 grand? I would probably use $50 grand to go buy a business. What kind of business? Some existing business that’s probably been around 5 to 7 years or longer. Give me an example. I probably wouldn’t even use the $50. I would use the $50 in a bank account to show the guy that I’m legit. And then to figure out a deal where he actually gives me money to take over the business. He gives me the keys and I get the income. So I’d find some business with a net profit of $50 grand a month. I’d use the $50 in an account just to make me look like something. $50 grand a month. Net profit $600,000 a year. Let’s say he’s making $50 grand a month. Has been for years. You keep the first $50. I get the keys. I get the business. We keep the name on it. You go home. You keep getting $50. I get everything above that. What’s an example of a business like this? Laundromat. Could be an apartment building. Car wash. Could be. It could be any kind of cosmetologist business. It’s a tattoo business. So, you need somewhere where some guy’s tired. He’s tired of being in the business.

Brian: So you can go be tired. Let’s trade your tired for my tired.

Bo: Yeah. Go find a business that’s profiting $600,000 a year. Find someone who’s ready to be out of that business. Show them a bank statement that has $50,000 and say, “Hey, I’ll take over this business that’s netting you $50 grand a month, but you pay me to take it over and I’ll take the business and we’ll just lock you in where you are and I’ll take up any growth that I do.” That’s just not the way that it works. It’s not the way that succession planning works. It’s not the way that business acquisition works. It’s not the way business disposition works.

Brian: Grant is good at rage bait. He says these things. If we sat down and broke bread with Grant, he’d be like, “Yeah, I got you, didn’t I? Got you. Got you. Got you all fired up.” Because you know that is disconnected from reality. But there’s a lot of aspirational people that watch content to get motivated more for the motivation than to actually create action. And I think that Grant sells systems to do that. And that’s why he’s very effective at it and has made himself completely filthy rich off of selling what could be to people who want to think that they could be a part of this. If you’re looking for your first thing, if you have your first $50,000, Financial Order of Operations, because it’s going to help you out with that emergency reserves. It’s going to help you out on that Roth IRA. It’s going to help you out with your employer 401(k). Let’s get you to your first financial foundation before we’re doing the crazy stuff at the top of the investing pyramid.

Bo: Love it.

Financial Advisors Just Put You in Index Funds (11:52)

Video Clip: Financial advisors, I’ve seen this. Putting your money in an index fund. [Guy closing the doors of a subway]

Brian: I’ve seen this. I even told a client about this. I think the content team put this in there thinking we’d be like, “I wonder what the guys will do because they know we love index funds.” The reality is, if this is all your financial adviser is doing, they’re not really financial advising. I mean, where is the looking at your emergency reserves, your taxes, your retirement plan, your estate plan, your insurance and risk management? All these things come into play. And by the way, the closer you get to retirement, the more complicated it all gets. I wish it was a matter of just putting people into an asset allocation and then going, no mess, no fuss, send me the money. It doesn’t work that way.

Bo: Yeah, that’s not the way that real financial planning operates. Although there are a number of financial advisers, there are even a number of fund companies that actually do do that. They say, “Hey, I’m going to repackage this S&P 500 index fund, but I’m going to call it something else. I’m going to put ‘growth’ on it. I’ll put some other name on it and I’m going to charge you for that service when realistically all you’re actually getting is S&P.” So, you ought to be aware of what you’re buying, what you’re spending on it, and what you are actually getting to make sure you are getting your money’s worth.

Brian: Do you realize what a position of power it is to create one of the largest financial platforms, openly tell everybody, “Hey, do what I do with my money and go invest in index funds just like we do,” and still have a phenomenally growing financial planning firm where people aren’t locked in. By the way, every one of our clients can vote with their feet and leave tomorrow if they wanted to, but yet they keep showing back up and we keep growing at these double-digit rates. You have to ask yourself, there must be something to that for people to just willingly give their money and stay when they’re already, majority of them, multiple seven-figure people. I love it when people think that all financial planners do is put you in an index fund and then count their money. That obviously doesn’t pass the sniff test.

Sports Betting Is the Same as Investing (13:57)

Video Clip: Financial services is threatened by sports bettors because we’re not getting young people to do IRAs, mutual funds. They’re doing sports betting. 55% of all stocks ever on the S&P 500 has lost money since inception. That’s why I don’t think it’s gambling, it’s strategy. But you got to know the game. Just like if anybody hopping in the stock market, they don’t know how to trade options day one. They don’t know how to short stock. So with the responsible gaming, putting 5% of your paycheck into that and setting discipline, it’s no different than stocks, crypto, or real estate.

Bo: Yeah, it actually is. It’s exactly different than stocks, crypto, or real estate. Financial services is great. When you’re a sports bettor, you’re betting on an outcome. You’re not investing in a future. It’s not the same thing. How many times have you seen someone, Brian, walk into a casino and say, “No, I’m going to work. I understand how this works. I understand how to beat the system. I understand how to do it.” It’s gambling. It’s not investing.

Bo: Gambling, sports betting, you’re the fish. You’re the mark. If you don’t believe that because maybe you found out, hey, you know what, I can count cards— you realize casinos, if they realize you have figured out how to count cards, they restrict your ability to do that in their casino because they want to have the upper hand. They want to keep you the fish. This is complete nonsense. If you don’t realize that you’re the product or the fish of the situation that’s waiting to get hooked and pulled in, then you are on the wrong side of this. You’re not the house. So, act accordingly.

Robert Kiyosaki – Real Estate Over Stocks (15:21)

Video Clip: I never invest in stocks. I don’t trust the stock market. You can. I’m not saying don’t do it. I just don’t trust them. So, I like real estate because I’m the investor. I don’t need to trust anybody else.

Brian: Well, it— look, we love real estate. We have real estate, too, but it’s just not where you start. Kiyosaki also— I mean, he wants you to have 100 rental properties. I mean, this is a full-time position. If you’re looking for the purest form of passive investing where you actually get to enjoy your retirement and you know count on money showing up in the account, it’s not going to be a portfolio of doing active real estate. I can say as us owning multiple commercial properties, it is far from passive because you have toilets that overflow, you have HVAC units that go out, back doors that all of a sudden start not locking, and your tenants are freaking out about that. You get all kind of calls at all hours. I appreciate what he’s saying, but if you’re trying to figure out how people build wealth in the easiest fashion and when they don’t know anything about how money works, it’s index investing. It’s following the Financial Order of Operations. This is the way. We have an entire business built off of wealth management for highly successful people. And the majority of the lion’s share of them have said they built their first seven figures not through real estate or all these other things. It’s through being consistent and disciplined with their investing.

Bo: Yeah. I just don’t understand how he said, “I don’t trust the stock market.” There are so many stories, so many case studies of people that consistently save and invest in low-cost index funds over a career, over a life cycle, over a specific period of time, and end up in a much better position. I’m not suggesting that’s not true of real estate also. And that’s why we don’t think it’s an either-or. You can do both. But this idea that, oh, I’m not going to do traditional stock investing or traditional market investing because I don’t trust anybody— instead, I’m going to go do real estate investing where I have to trust the appraiser, I have to trust the bank, I have to trust the tenants, I have to trust the service provider. That doesn’t make any sense. It’s still the same exact thing. It does not, again, pass the sniff test.

Closing (17:29)

Brian: Look, there is a better way to do money. And one of the things I feel like we got on the mountaintop and there’s so much noise and haze down below of all these people telling you the way to build wealth— we tell you it’s very simple. There’s a better way to do money with the Financial Order of Operations. If you will do this to build your financial foundation, you’ll still be able to sprinkle in all the Kiyosaki, all the Grant Cardones, all the other things later— the cherries on top of your sundae. But just do it at the right time, right place, and respect the value of your most important resource, especially when you’re young, and that is your time and your discipline. I’m your host, Brian, joined by Mr. Bo, Money Guy Team out.