B (2:33)

So the earlier you start, the easier the journey is. The later you start, the harder it becomes. So what should you do instead? If you don't want to make that mistake, you need to get started early. We say this all the time, Brian. The absolute best time to start investing was yesterday. Which means by default, the second best time to start saving and investing is right now, today.

A (2:55)

Now what I like is that we're going to show you. We've already talked about the benefit of starting early, but let's talk about the younger you start, the less you need to save. And actually you have to decide who do you want to do the hard work to do the heavy lift? Do you want it to be you and your savings rate or do you want to give it the power of time so that the compounding growth actually does the heavy lift for you?

B (3:16)

Yeah, because again, let's think about this idea, this, this case study of being a millionaire. We've already said that for a 20 year old, if you save $95 a month, every month for the rest of your career, you can get to a million dollars. And when you get to that million, do you recognize 95% of your account value? $950,000 of that million is all growth, is all. People aren't going to believe that it's your money working. But the longer you wait, the later you get, the worse the story becomes.

A (3:44)

Yeah, I mean, did you hear that of that million dollars, only 51,000 is your contribution. 95% comes from the growth. If you deferred and just waited until you're age 40, 234,000 of your million dollars is coming from you. The other 766 is coming from the growth. Still 77%. Pretty incredible. But if you wait until you're 50 now, man, you've really pushed this. Now 446,000 of the million dollars is you, 554,000 is the growth. And then if you just wait until you're 60, you can quickly see that now you're 70, 783,000 of it, or pretty much all of it is you. And only 200,000 growth. Start soon. And don't rest on how much your time is worth.

B (4:28)

I've heard you say this before, Brian, that if you figure this out, time can be your absolute best ally. But if you wait, it begins working against you. And the numbers show that. So if the first mistake, Brian, was not starting early enough, I think this mistake number two is going to throw people for a loop. You've already alluded to this. But our second mistake that we see is people starting too soon.

A (4:51)

Now, wait a minute, Bo. You're giving me mixed signals. You just told me people are deferring and waiting too long. Now we're saying the second mistake is people are starting too soon. What in the world could you possibly mean?

B (5:01)

Yeah, what we want is we want you saving, investing. We want you building for your future, but only after the point that you've figured out, how do I mitigate the risks in my life that could derail my. And that could derail my entire financial life. So often people. Wait, wait, wait, wait. But on the other side of that coin, there are people who. It's the very first thing they do when they start out and they don't realize that they're building their financial foundation on a fragile basis.

A (5:29)

Well, that's what, what we're talking about is the things that can come out of nowhere on a Tuesday afternoon that can devastate your financial life. So you might be thinking, hey, I got excited. These guys got me started to save and invest early. But if you're not covering the basics, because here's what, here's the reality. It is a $30,000 thing. If you had to stay in a hospital for three days so you can quickly see if you don't have insurance, if you don't have an emergency, reserves or something, just to keep you from desperate decisions, even though you might have the greatest intent in the world, you could have an emergency that could derail your financial life forever.

B (6:05)

So then the question becomes, okay, if I don't want to start too soon, how do I know when to start? What's my roadmap? What's my guide? We have built the guide for you. It's called the Financial order of Operations. It's a nine step process to walk you through exactly what you should do with your very next dollar. So as you're working through this, if you make it through step one, and then you make it through step two, and then you make it through step three, you can eventually get to the point to where you should be saving and investing, but only after you've covered those basis well.

A (6:36)

And a lot of people go, they might not be familiar with the financial order of operations. So I'll just go and tell you what this does is like step number one is insurance deductibles. Your highest deductible coverage. That way it's taking that one off like the hospital stay off the table. That then frees you up to where if your employer is offering you 50 cents on the dollar or dollar for dollar, match that 50% or 100% guaranteed rate of return, you're going to immediately maximize that with step two. This also protects you from step three. What if you have high interest credit card debt? This is going to protect you. You can quickly realize we've created a better mousetrap. There is a better way to do money so that you can minimize the risk. But you can go into investing freely and clearly and know that you're not starting too early, but you're maximizing the power of compounding growth.

B (7:23)

I love that you said you're free and clear to start investing and start building for your future. And a lot of people get to that place and, okay, I know I'm going to start something, but I've already followed the foo and I've got steps one through four covered. But now I arrive at the place, and this is where we see mistake number three, that a lot of people are actually investing in the wrong things. We want you saving and investing. We want you putting your money to work, but we want you to putting it to work in the right places.

A (7:51)

Man, oh man, this is human nature. You find out about this wonderful world of trying to grow your money, and you're like, I want to get there as fast as possible. I'm going to go ahead and ruin it for you guys. When we tell you how people actually make your money, you're going to be disappointed because it's boring. But we'll go ahead before people finally realize this and they catch the wisdom do it. They get caught up in what we call trendy temptations.

B (8:17)

Yeah, I think one of the most common right now, one of the ways is, oh, I've got to be involved in cryptocurrency. I've got to be doing the next digital thing. I've got to be doing this exciting thing. And while there may be a case for cryptocurrency and it could be part of your financial life, when you first start out and you begin deploying your very first dollars, that's probably not where your dollars ought to be going.

A (8:37)

Yeah, I mean, you can look, we're not against cryptocurrency it's just. But do you think that that's really how you're going to build all of your wealth? I mean it's, if you, anybody who watches this, you see how much volatility it has in price. There's a, there's, it's more speculative or it's more something that you can compartmentalize than to build your entire retirement off of this. Plus the. Don't put all your chickens in one basket, you know, all your eggs, not chickens, it's the chickens that have the eggs. Don't put all your eggs in one basket is one thing. And it's the same thing also with single stocks. Just so you don't think we're just picking on the crypto Bros. No, we're picking on the people who just think that they're going to find the next Nvidia or the next Apple before they actually become these companies. Be careful with that. It's, it's kind of like doing sports fishing versus fishing with nets. If you know that you have to feed your family, you know you're going to act differently than if you're just doing this for the fun of it.

B (9:33)

Or even in today's, today's day and age, we see people saying, oh well, investing in stock market. That was all stuff from my grandparents. That's not for me. What I've recognized is that we are in the new age now with all of these different opportunities. I can now do sports betting and I can start gamifying my financial life and that's going to be the way that I'm going to be able to attain financial independence and build wealth. And we would argue that, that all of these are trends and they're supposed to have sizzle and they're supposed to be exciting. But when it comes to building wealth, they may not be what's in your best interest. Rather, instead of chasing those trends, instead of trying to find the next get rich quick thing, we would argue that you should just keep it simple.

A (10:14)

Well, because here's the thing. If you get sidetracked with these trendy temptations, you're not only it's the dollars you're wasting, but it's also the time. And that can be even more costly than the dollars to some point. So when we talk about just keep it simple, we want you to consider what's wrong with doing index funds. And guys, here's the reality situation. Your typical millionaire got that money through an employer retirement plan, through dollar cost averaging, through consistent acts of saving and investing. For the future. And by the way, you don't have to try to pick the next latest, greatest individual stock. You, you just need to be the market. That way you're going to capitalize all the innovations, all the great things that are going on. You don't have to go pick the winners and losers.

B (11:00)

That's exactly what an index fund does. It track, it tracks some specific market index. Often we think about like the s and P500. It's the 500 largest companies here in the United States. And rather than you having to go buy each one of those 500, you get to buy a basket of those holdings. The index fund is one singular at holding that diversifies your exposure. And historically, when you invest in individual stocks, you have a lower probability of success than those folks who just go out and buy the market, buy the index fund, buy the broadly diversified basket of goods. So when it comes to investing, we want you to err on the side of high probability of success.

A (11:43)

Well, here's the thing. Even now, we've gotten, the world has gotten so much better and easier to invest. When we say things like index funds, I mean, the first thing you think of is typically like an s and P500. That's the 500 biggest companies in the United States. But it's gone way beyond that now because now you can buy an index fund for how you want to do your bonds. You can buy an index fund for how you want to do real estate. You can do an index fund for small company investments, international investments. All of a sudden you're quickly starting to realize, hey, this great simple concept has gotten somewhat complicated when I bring in this concept of asset allocation. So how do I do that? Because I still take myself back to when I was 22 years old and these products didn't even exist back then. But I didn't even know what to do with my next dollar, much less know how to maximize an investment allocation. What is a person supposed to consider then?

B (12:31)

Yeah, so what entered the scene was now target date index funds. And these are wonderful because they create a set it and forget it type solution. If you are someone who wants to invest and wants to get your money working, and you can answer these two simple questions. How much can I save? And when do I think I need the money? If you can answer those questions, a target retirement index fund can be the solution for you. Because what it does is right now, while you have many, many years until retirement, it's going to be more aggressive. But then as you systematically move closer and closer to the date that you say you need those dollars, it's going to get more and more conservative. It's going to automatically adjust over time for you so that you can focus on the things that actually matter. How much am I saving? How much am I putting to work? How much am I building for tomorrow?

A (13:19)

Now, remember, we're talking about the index variety of target retirement funds. These are low cost. They give you all the benefits of indexing. But instead of you drowning, in which index do I go into? Because it represents different asset classes. Now, you answer those two key questions, and we even have an illustration to show you what this looks like over time. As you can imagine, this is, this solves the problem. When you hear people talk about, hey, you need to be rebalancing every year, you know, because every year you need to be kind of adjusting for the winners and losers. You need to be adjusting for where your risk profile is between your different asset classes. Guess what? This is exactly what index target date funds do for you, is because while you're young, you're swinging for the fences. Now, yes, they will have bonds in them. I will tell you, that's the, that's the biggest complaint I get from people is, is two things. It's the cost and then it's the bonds. Well, the cost I'm not so worried about because we're using the index bonds. These things are already very approachable, very cheap, very affordable for what they are. And when people bring up the bonds, I'm saying, hey, look, Vanguard Fidelity, Charles Schwab, all these people have different structures and asset allocations. Go do your due diligence and figure out which one has the risk profile that best represents what you want. But, but I still love the fact that they're going to be very aggressive while you're young. But every year that you get a year older, you don't have to rebalance because these funds are going to be doing the glide path to make them more and more conservative as they approach that date that you chose as the maturity date.

B (14:48)

All right, Brad, we're walking through common investing mistakes or wealth building mistakes that we see people make. And we talked about how some people don't start saving soon enough and some people save too early. We've said that some people invest in the wrong things. Well, mistake number four is on the, on a different branch of the same tree. And oftentimes we see people investing in the wrong place. And it's, it's not inconceivable why with technology today, it's gotten so Easy. I can go open up a Fidelity account, a Vanguard account, an Acorns account. I can go open up any of these accounts, just a regular old brokerage account, and start putting money in and start today investing. And yet, as noble as that is, and as positive as that is, that may not be the best solution for you when you first start building your wealth.

A (15:36)

Man, oh man. This is the brilliance of why we had to get into what we were doing is because we wanted to encourage people there's a better way to do money. The first thing you want to start with is let's start with the tax advantage accounts because we know there's going to be several friction points. There's of course going to be the fees that you paid. But another huge friction point that all investors face is the income taxes that you're going to pay on how well your investments do. We've taken that account and we like you to maximize those tax advantage accounts in the beginning.

B (16:07)

And again, it's so beautiful. While we've put together the financial order of operations, Brian, behold this stuff. If all you're doing is following the financial order of operations, it's naturally going to have you putting money into the buckets that you're supposed to. You've already acknowledged, Brian, when you get to step two, it's the very first place that you start investing and you're going to get that free money from the employer match. You have money going into a tax advantaged account, you get your high interest debt paid off, then you get into your emergency fund, you get that filled up. The very next place you start is tax free with the Roth and hsa and then you go back to the employer sponsor retirement plan and then you graduate to the after tax account. If all you're doing is following the financial order of operations, you are naturally setting yourself up to make sure you were being as tax efficient as possible.

A (16:52)

Well, a lot of people are probably like, well this is great, I'm glad. Now I've got an all terrain vehicle with the financial order of operations. But still like the education. Can you backfill me? When you guys are talking about tax efficiency and the different types of taxable accounts, tax free, tax deferred, we're really talking about the three bucket strategy. And realize different investments do different things and different account structures do different things. So your pre tax, this is your traditional 401ks, traditional 403bs, 457s, your traditional IRAs, everything you put in the government says, hey, we're going to let this grow. Tax deferred. But when you pull it out, Uncle Sam's going to be there with his hand out expecting to collect the taxes. They even have what's called required minimum distributions to force you to pull the money out of these things. That's why you're going to want to put assets in these accounts that grow and are taxed at ordinary income. You're tax free. We love Roth accounts. Now look, Roth accounts have a catch. And the fact that typically they don't give you a deduction on the contribution, more on that to come, but they let that money grow tax deferred. And then when you pull it out for the appropriate reasons, it is completely tax free. And we love these accounts. That's your Roth 401K, your Roth 43, Roth 457, of course the Roth IRA, which is step number five. Now I told you all that, that we don't get the tax deduction, but they grow tax free and that's why we love them. There is an exception. The health savings account is triple tax advantage. Where you even get it defies logic. This is how much the government's trying to incentivize this behavior. They give you a deduction not only on the contribution, not only do they not tax you on the growth, they not only don't tax you as you pull the money out. These things are incredibly valuable. And then of course there's after tax. Now this is in between. It's got some tax benefits, but it's also got incredible accessibility, meaning that you can come. You don't have restrictions on withdrawals, you don't have restrictions on contributions. But these are the type of accounts where you want to put dividends, capital gains, we loved. You can quickly see there's a passion for this, but there's also complication or structure that needs to be taken into account. And that's why we try to build. You have to know where to invest your money to make maximize these tax favored planning opportunities.

B (19:06)

Well, you just acknowledged something right there, Brian. Even when we don't mean for it to happen, our financial situation can become complicated. As the numbers get bigger, as the account types grow, as the options at our disposal increase, it gets more and more and more complicated. And when you add to that the fact that we get busier and busier and busier, it's no wonder that the fifth mistake that we often see people begin to make is not knowing when it makes sense to ask for help.

A (19:34)

Now look, here's the first, probably the most valuable thing we've just Covered a lot of technical stuff between asset allocation, tax, location and all the other stuff. But can I be honest with you? I think the best thing that I do for clients also, I protect them from themselves is because you wouldn't believe. Look, for most of you who are brand new to investing, you are the wild, wild west cowboy. You can handle no matter what the market's going on. It's a, okay, because I'm here working, I'll just save more and do it more often. That's, that's great. But you'll find as you get closer and closer to retirement, especially once you quit working altogether, you become highly susceptible to what's going on in the marketplace. It impacts your emotional happiness. So if there is, the market is going down 20, 30, 40% like it did in 2008. Yep. You buy, panic, sell. That is an absolute disaster. We are here to kind of behaviorally put up the guardrails and talk you out of making those horrible decisions. And we even have the proof to show you why you need to be mindful of these faults and risks. That is part of the human condition.

B (20:43)

Yeah, we know that 80% of personal finance is behavioral. So if we can get charge and take hold of the behavior and the emotions, we can likely set ourselves up for success. Because look at this. If you were to just invest $10,000 in the S&P 500 from 1988 all the way to 2023, and you just left that $10,000 invested over that nearly 40 year period, you can see that it would turn into $418,000. 10,000 turns into 418. If, however, over that time period, you just missed the five best trading days, only five days out of that whole period that you were out of the market, instead of ending with 418,000, you end up with 264,000. If you miss the best 10 days, it drops to 191,000. The best 30 days, it drops down to 71,000. If you missed the best 50 days again, this is from 1988 all the way till 2023. And you just missed 50 trading days inside that window. Instead of ending up with $418,000, you end up with $32,000.

A (21:53)

So I want you to take that account because I know when I'm doing the scrolling on the, the tickety talkity, you know, there is always somebody who's out there telling you the sky is falling, telling you that because the government's doing this, because this person's elected into office, it's going to be like this or this crazy thing right here is going on that you ought to go and sell everything. Or how about worse? The person says your 401k is a joke. Oh. I mean there's so much bad information out there that if you let your emotions run roughshod over you, you could quickly fall prey to. Even if you realize you made a mistake for only a short period of time, it doesn't take long to derail your long term success. So there's something we always tell people when they fall prey to letting their emotions and they don't have somebody in the corner to help them. We say, hey, when in doubt, when you're worried about your emotions, when in doubt, zoom out and you'll quickly realize even these things that seem catastrophic in the moment we're living in. If you can just hang on, grin Barrett and stay the course, you're going to be a. Okay. In the long term.

B (23:00)

Yeah. If we rewind all the way back to the Great Depression, back to the 1920s, you can see the Wall street crash, you can think about Black Monday in 1987, you can think about the dot com bubble bursting in the 2000s, Great Recession in 2008, the COVID crash of 2020 and even the most recent downturn in 2022. And even when you think about all of these events, all of these significant market downturns over the course of time, if you could have just zoomed out, you would recognize that the all time return of the index over that time period, 17,000%, the things that seem huge like the dot com ball or like the Great recession are nothing more than a mere blip on the radar. But you have to make sure that you keep your emotions in check. You have to make sure that you stay level headed and pragmatic and you have to recognize when you are potentially detrimental to yourself. So how do you combat not knowing when to ask for help? Simply ask for help.

A (24:04)

Well, I think it's probably interesting a lot of people who were looking at that previous slide, when in doubt, zoom out, like wait a minute, I lived through some of these. I remember, you know, enough of these things are stacked in close enough and they're probably in the back of your mind you're trying to think about how did I handle that? What did I do? And that is probably you can cross reference that mindset to now these next questions and say, well, when should I hire a financial advisor? These guys are bringing up some great points. So we've actually written down three key times when we think it makes sense for you to consider now there's going to be even more. But these are three key points for you to take into mind and take into consideration.

B (24:44)

Yeah, this is generally when we think about folks who reach out to fulfill the abundance cycle, they are at one of these points or perhaps an intersection of these. Generally it's when complexity has found you. Things have gotten so complicated and so complex you don't know exactly what you don't know. Or perhaps life has just gotten so busy you now don't have the time or the attention to to be able to give your financial life the focus that it deserves. You are now becoming a CFO asleep at the wheel. Or maybe the gravity of your decisions has become so big that you used to have $10 decisions and now you have hundred thousand dollar decisions. Do you recognize that is too significant, it's too important, it's too impactful. I don't want to begin making them on my own.

A (25:28)

Yeah, this is the point. I call this the abundance cycle challenge is that we have been creating content now for 20 years. Is that if you remember who planted the seeds, who gave you the free advice, the free information that turned into something magical. This is when we want you to realize, hey, the abundance cycle does have a next level. And this is we will leave the porch light on for you and we'd welcome you look your life. The reason we can give away so much for completely free is because we believe in this system. We believe in how this all works and we ask for absolutely nothing from you because we know if we do this right, it's going to automatically just through the goodness of what it's doing for you, create success. And you know what? Success creates complications. And when those complications happen, once again, the porch light will be on. We'll be waiting for you. And we can take the harvest of the abundance cycle to know everything we planted in you. All these concepts worked and we'll get you through it. You don't have to be creative going through your only retirement where you don't know what you don't know. We will help you answer this. We've done this hundreds, going on thousands of times now. We can maximize those opportunities for you too. I'm your host Brian, joined by Mr. Bo Money Guy team out.

B (26:42)

The Money Guy show is hosted by Brian Preston and Bo Hanson. Brian and Bo are partners with Abound Wealth Management. Abound Wealth Management is a registered investment advisory firm regulated by the securities and Exchange Commission. In accordance and compliance with the securities laws and regulations, Abound Wealth Management does not render or offer to render personalized investment or tax advice through the Money Guy Show. The information provided is for informational purposes only, may not be suitable for all investors, and does not constitute financial, tax, investment or legal advice. All investments involve a degree of risk, including the risk of loss.