Financial Advisors React to Financial Advice on YouTube!

Introduction – More Financial YouTubers (0:00)

Brian: Fresh out of the content room, we’ve got some other financial YouTubers for us to react to.

Bo: Brian, I am so excited to see what the content team has in store for us today. Let’s dive right in.

Time in the Market Beats Timing the Market (0:10)

Video Clip: This chart shows the percentage of periods where investors earned a positive return by a variety of different holding periods. Over short-term holding periods like 1 day, 2 months, or 3 months, the odds of making money in the stock market are slightly better than a coin flip. If you extend that out to holding periods of 1 year, 2 years, or 3 years, your odds start to improve all the way up to about 75% chance. Once you start to buy and hold for a multi-year period, such as 5 years or 10 years, your odds improve greatly to nearly eight or nine chances out of 10. And if you increase your holding period to all the way to 20 years, your odds of making a total positive real return in the stock market are 100%. Now, Wall Street traders are forced to focus their time and attention over here. However, if you’re an individual that can invest with a long-term mindset, your odds of making money in the market can improve substantially simply by holding on to stocks for a longer period of time.

Brian: Hey, and Bo, you know something we know? If you add diversification on top of this, you can actually push that years to take it to 100% even lower.

Bo: That’s right. We know in finance, nothing is guaranteed. However, man, if you can stretch your timeline, there is a high probability of success that you will have a favorable investing outcome. But it’s like you said, you have to give it enough time. You have to not focus on the short term because in the short term, it can be a little frenetic. It can be volatile. It can be all over the place. But if you stretch it out, it’s a pretty smooth ride.

Four Things Broke People Buy (1:34)

Video Clip: Four things that broke people buy that wealthy people don’t. Number one are lottery tickets. So, a Bankrate study found that US households with incomes under $30,000 spent an average of $412 per year on lottery tickets.

Brian: I didn’t know that.

Video Clip: Which is four to five times the amount spent by households earning over $75,000. Lower income households spend a much larger percentage of their income chasing an improbable win. Number two are extended warranties. So, when you’re at Best Buy and they try to sell you that $200 extended warranty on a $500 TV, do not buy these. In general, they are just not worth the money and they often will have exclusions and they might not even cover the repairs for the damages that happen to your product. Statistically, these warranties make profits for the store, not the customer. And premium credit cards often include extended warranties for free. And I do think that these retail stores often try to take advantage of people who just don’t know better. Number three is buy now pay later. So studies show that BNPL disproportionately affects lower income brackets. And there is a correlation between buy now pay later use and existing financial struggles. Sometimes you might have to opt for BNPL out of necessity, but if you’re just using it to finance a new pair of shoes, you could easily fall into a debt cycle. And number four are brand new cars that are out of their budget with long-term loans. So it’s easy to fall for a 72, 84, or even 96 month loan because then the monthly payment is affordable. But if you have to opt for that long of a loan, you’re paying massive interest on a depreciating asset.

Brian: You wouldn’t even own it. (People got me rolling). I mean, how many people actually own their vehicles for 96 months?

Bo: Yeah, I agree with all of it. As he was talking through, I was like, “Yeah, that’s true.” We have a fee-only financial planning firm. And as we think about all of the clients for whom we serve, they do not do those things. They don’t fall into those same traps that a lot of average consumers fall into.

Brian: That’s why we have 20/3/8. That way, you don’t let yourself get trapped. 20% down, financed for no longer than 3 years, and you don’t want it to exceed 8% of your gross income. Buy now pay later, never use that. I can’t imagine anybody on our planning staff making a lot of use out of these buy now pay later services. I think that this is a trap for a lot of people. And we would argue if you can’t afford to pay for it all in cash right now today, then you can’t afford it.

Wealthy People Grow Money, Broke People Spend It (3:46)

Video Clip: The biggest difference between wealthy people and broke people is that when broke people earn money, they earn it with the intention of spending it. When wealthy people earn more money, they earn it with the intention of growing it. Some people make money to look like they’re richer. Some people make money to actually become richer. And that’s why the richer people get, usually the broker they look.

Bo: Was it Morgan Housel that said most people would say that I want to be a millionaire, but what they actually mean is I want to spend a million dollars.

Brian: And being a millionaire and spending a million dollars are in exact opposition to one another. This is why so many lottery winners end up broke as a joke is because they’re thinking from the consumption side versus owning and building sides.

Fixed Income in Retirement Portfolios (4:28)

Video Clip: I think fixed income is an important part of a retiree’s portfolio. You will find out there some that argue, including, by the way, Dave Ramsey, that you should have 100% in stocks during retirement years. Listen to many of those arguments. I haven’t found any of them persuasive, but the reality is I think most retirees probably can’t stomach a 100% stock portfolio. And if we ever encountered something similar to, let’s say, 2008, 1929 stock market crash that then ushered in the Great Depression, I think we would find a 100% stock portfolio would absolutely crush our retirement. Just seems to me a risk that retirees just don’t have to take. Most retirees have social security and many have a pension. You may have some other forms of guaranteed income. And for some, if all of that guaranteed income is enough to meet your needs and that your retirement savings is more for that extra spending you want to do, it might make sense to invest that predominantly in stocks. But that’s because you don’t need it to live on.

Bo: Even if something is a low probability outcome, if the severity of the outcome is so bad, it still might not make sense to pursue it. I use the Russian roulette example all the time. The probability of having a bad outcome in Russian roulette is relatively low. However, if you have a bad outcome, it is devastating. It is catastrophic. When it comes to investing, when it comes to your retirement portfolio, when it comes to your life savings, that same thing is true. So, why would you not take risk off the table? Why would you not diversify? Why would you not set yourself up with the highest probability of long-term success?

Brian: What I love is that we’re both trying to come up with illustrations to help people understand this concept. And you chose violence by going Russian roulette, whereas I’m going to try to make this a little more digestible. You guys realize whenever you fly a commercial airline, those jets are so powerful that they could take off much sooner and they can definitely slam into the ground and land you. The time savings alone, the fuel cost and those things would make it somewhat worthwhile. But some genius at the airlines realized if you scared the heck out of every one of our passengers by shooting off like a rocket and then slamming this thing into the ground so fast that everybody is just traumatized that they never want to fly commercial again, nobody will ever do it. It’s the exact same way with your portfolio. I’m always amazed when people think they’re going to be 100% stocks and then they get into retirement and they already deal with that stress. The first time the down market happens, when you no longer can work a few more years to kind of smooth it out, you’re going to see the fear that we deal with on a constant basis when people transition from savers to spenders and then you throw in that secret sauce of market volatility and your hair is literally on fire. So, I want you to think like a commercial airline. No, we want to have a smooth takeoff. We want to have a smooth landing. We want to do planning so when you get there rested and then you look at your portfolio and go, “Hey, that wasn’t so bad versus putting yourself through the wringer just so you potentially could make a few extra dollars.”

Bo: You thought yours wasn’t violent?

Brian: Well, I mean, it’s Russian roulette there and slamming them into the ground. I don’t have to go higher. What’s the one from Pulp Fiction and the guy Mr. Wolf who comes and cleans up? Mine doesn’t require that. Yours would.

Getting Past $100,000 (7:50)

Video Clip: First off, $100,000 invested is a big deal. Only 22% of Americans have reached this number. So, give yourself a huge pat on the back. I know that it took a lot of dedication and consistency to get to this point. But you may also know in the back of your head that $100,000 is not enough for you. And a lot of people in your situation don’t have a lot of people they can talk to about how to grow that money more. Nobody wants to hear from someone with $100,000 in the bank. “Boohoo, Mr. Mrs. $100,000s. Life is so difficult.” It’s taboo to talk about money, especially when we’re talking about amounts like this. But the reality is that $100,000 is just a starting point for a lot of people to get to the levels they want. And what got you to this point may not get you where you want to go. This is not about trying harder. It’s not about using a fancier budgeting app. It is about building a smarter plan that matches the level you’re playing at.

Bo: One thing I love that he laid out is, you know, $100,000 is a boiling point, a tipping point, a fantastic spot to be on, but for most folks, it’s not enough to be financially independent. But he even said, you know, money is this taboo thing, and there are very few people that you can talk to about what’s going on, even when you hit $100,000. That is why we absolutely love the spot that we get to sit in. We have an entire community of financial mutants. If you go to moneyguy.com, if you go check out the Reddit threads of folks that are in that situation that can talk about that, hey, I got to $100,000 now. I’m trying to get to $200,000. I’m at $200,000. Now I want to get to half a million. And this is what that money means for me. And then eventually they get to that point to where they say, “Man, I feel like I’m in this area, this unique spot where I don’t know what I don’t know, and I’m not sure who I can talk to.” That is why we absolutely love when folks make the decision to take the relationship to the next level to find a professional advisor, a fee-only adviser that can help them navigate how do they get from that $100,000, $200,000, $500,000 to that ultimate finish line they want to be. And I agree with you completely. That is a fantastic time to begin having that conversation.

Brian: So here’s something just because we’re money nerds. A lot of people, it takes close to 10 years to get to that first $100,000. If you can stay the course, the spread between making $500,000 to the first million is less than 10 years. That first $100,000 is probably the hardest, but once if you stay the path, the second part of this gets much easier because that’s the power of compounding growth.

Grant Cardone: Saving Money Is Stupid (10:17)

Video Clip – Grant Cardone: Saving money is stupid. It is ridiculous.

Brian: Look at this. This is a twofer. Someone I like so much versus someone that I’m not so crazy about.

Grant Cardone: The only thing that ever happens to people that save money is they end up losing it and it ends up getting lost. It ends up getting stolen or it ends up going down in value. But it’s never going to get bigger. You save money at the bank, it ain’t getting bigger. We’ve all been told, “Save your money. Save your money. Save your money.” Who does that really benefit? I remember I read the blackjack book, How to Play Blackjack. I knew every card to hit. And then I realized everybody at the table had read the same book. Everybody’s staying on 16s. And this freaking guy’s banging 16s against nines or 16s against sevens. Everything he shouldn’t do, he’s doing and he’s making all the money. He was the only one not playing by the book.

George Kamel: Apparently, he thinks saving money is stupid because it doesn’t grow. Okay. Where does Grant Cardone think that we’re saving our money? The purses of elderly tourists in Tijuana? I mean, we’re putting it in FDIC insured banks. Our money is safe. And yes, it’s not meant to be a growth investment vehicle. It’s meant to keep the money safe to cover emergencies and hit our savings goals. We do our investing for investing. We do our savings accounts for saving for emergencies. It’s that simple, Grant.

Bo: We have to make sure that we have our bases covered, that we have risks managed. And one of the best ways we do that is exactly what George said. We want to have a fully funded emergency fund, 3 to 6 months of living expenses in liquid capital, in a savings account, a high yield money market, a money market mutual fund, somewhere where it can sit and be a store of value. I love that. It’s why we made it step number four of the Financial Order of Operations.

Brian: Look, I’m proud of the fact that we have started spotting the farce videos. I want us to now get back good enough that we spot the click or rage bait. Grant, when he made that, because do you realize what he just equated? He equated us just saving cash, your emergency reserves, just like George talked about, with blackjack strategy, you know, speculative play. He knows what he’s doing. We gave him exactly what he wanted. He’s wearing his 10X hat while he’s giving us some rage bait and we took the bait. We’re like the fish, the trout. It’s in our mouth and it’s setting the hook and then he’s reeling us in as we speak. We did it.

The Real Cost of New Vehicles (12:28)

Video Clip: Buying new vehicles over the course of a lifetime. Investopedia pegs this at over $900,000 for a household. Investopedia assumes that you buy two brand new cars every 10 years and that you finance them and keep that cycle going consistently. The question becomes, do you really need 12 brand new cars as a household throughout the course of your entire life? That’s a personal question that you get to answer. They also use the current average vehicle price which is anywhere from $48,000 to $49,000. We have a lot of individual discretion here. What if we make some small adjustments? Let’s say that both you and your spouse don’t have to drive $48,000 or $50,000 vehicles. Instead, maybe you go a little bit more modest and you drive a $35,000 brand new vehicle. What might that change these numbers to? While assuming you replace your vehicles with brand new ones every 15 years, this gets you to a household total of around $614,000.

Brian: This is one of those first traps that I think young people fall into is because it’s the first thing that people see when you’re out and about. You know, like you envision yourself sitting at the red light and somebody looks over and goes, “Oh, look at that. Look at that guy. Look at that girl in that car.” Nobody’s going to do that. That’s only in movies like Vacation and things like that that you see this fantasy actually play out. Nobody cares what you drive. So follow 20/3/8 and then make sure that your investments into your Roth, into your 401(k) exceed what that monthly car payment is.

Bo: We have this idea called the wealth multiplier. You can go to moneyguy.com/resources and play with a wealth multiplier. We know that for a 30-year-old, every dollar they invest at age 30 can turn into $23 by the time they get to 65. That means at 30 years old, if you decide to buy a car that costs $10,000 less, that single decision, that single $10,000 decision you make one time at age 30 could be worth $230,000 by the time you get to retirement. So, the timeline on when you make these consumption decisions matters. Don’t buy more car than you need too early in your financial journey.

Millionaire Accountant Street Interview (14:34)

Video Clip: What do you do for a living?

Millionaire: I’m the president of a company.

Interviewer: What industry?

Millionaire: Stevedoring.

Interviewer: Are you now a net worth millionaire?

Millionaire: Absolutely.

Interviewer: What has been the best investment you’ve ever made?

Millionaire: Oh, getting married and having kids. Two beautiful girls. I’ve been married for 40 years.

Interviewer: So, what was your first position in your company?

Millionaire: I was a junior accountant way back when, making $12,000 a year.

Interviewer: How did you make the most of your entry positions to be able to help you advance?

Millionaire: Don’t just do your job there. Just look for more work.

Interviewer: And as you were growing your income, how were you investing your money?

Millionaire: Well, we had a lot of savings bonds back in Canada. 19% interest.

Interviewer: Did you move to America and change your investing?

Millionaire: He just showed us how old he is. Yeah, we started investing.

Interviewer: What were some of the smart investing moves you made?

Millionaire: Be patient. You know, the stock market goes up and down. When you’re younger, you can take risk, but when you get older and ready to retire, less risk and more conservative.

Interviewer: Do you consider yourself a frugal guy?

Millionaire: I am. Yes. I’m an accountant.

Interviewer: Do you splurge on cars?

Millionaire: Yes, I do. I love my cars.

Interviewer: What kind of car do you drive?

Millionaire: Oh, I just drive a simple MDX Acura.

Interviewer: Acura? Yes.

Millionaire: Oh, yes.

Interviewer: What about when it comes to clothing?

Millionaire: Oh, I’m very conservative. I’m not a high-end clothing guy. Whatever looks good, I buy.

Brian: I think this might have been filmed right outside because I’ve seen JC out in our quarters. I loved this interview because that gentleman obviously very successful. Now look, he shared he was an accountant.

Bo: So of course brother would be successful, right?

Brian: Yeah. But seriously, he dropped a lot of dimes there of nuggets of knowledge, but he also showed that he’s old enough that he’s lived through inflationary periods. He’s lived through volatility, but making good decisions, deferred gratification. There was nothing to really be negative or to criticize in that video.

Bo: It seemed like he was the prototype for the millionaire next door. He was conserving the clothes that he bought. He drove a very reasonable car. He started out at an entry-level position at the company who he now serves as president for. But even when he was at that position, he made wise financial decisions. He saved and he invested. And then as his income increased and as his titles changed, he got better and better and better. He eventually said he hired a financial professional to help him navigate his financial life. He literally did the thing that millionaires next door do. And it wasn’t because he was living in a mansion or driving some Bugatti. I think that is what—

Brian: Well, did you see? And I even saw JC’s face. So he said he’s a car guy essentially, but then he says he drives an Acura MDX, which is not a car snob type vehicle. Well done. I mean, there was just a lot of nuggets of knowledge. That’s one of those man on the streets that I think that hopefully people get positive stuff out of. And that’s exactly when we try to create content, Bo, we want people to know there’s a better way to do money and we try to load you up with as much free stuff. That’s why please go check out moneyguy.com/resources.

Closing (17:05)

Brian: If you love this type of content, wait until you see what we can load you up with and give you for free from our website so that you can reach a level of success that you never thought possible. I’m your host, Brian, joined by Mr. Bo, Money Guy Team out.