Podcast Summary: The Personal Finance Podcast - "What to Do With $100K: Invest or Keep It Safe?"

Host: Andrew Giancola
Episode Release Date: February 5, 2025
Podcast Title: The Personal Finance Podcast
Description: Andrew Giancola from Master Money shares personal finance strategies, investing tips, and business insights to help listeners build substantial wealth. This episode addresses key questions about managing a significant savings sum, including investment options, mortgage strategies, and safeguarding against scams.

Introduction

In this episode, host Andrew Giancola delves into listeners' pressing questions surrounding the management of $100,000 in savings. The discussions cover opening brokerage accounts for children, deciding between paying off a mortgage or investing, safe storage options for substantial savings, awareness of emerging scams, and navigating investment advice and fees.

1. Opening a Taxable Brokerage Account for a Child

Question: How can a kid open a taxable brokerage account at birth, and where can the money from that be invested? Only earned money can be used for investment, correct?

Andrew's Insight:

Andrew explains his strategy for setting up financial foundations for children through taxable brokerage accounts. Unlike UGMA or UTMA accounts, these accounts are opened in the parent's name with the child as the beneficiary, offering greater flexibility.

Notable Quote:

“The beauty about the taxable brokerage account is that you can hold it for as long as you possibly want because it's in your name.” ([02:45] C)

Key Points:

• Initial Setup: Andrew opens a taxable brokerage account for his children with an initial $1,000 deposit at birth.
• Monthly Contributions: He contributes $100 monthly, supplemented with $250 gifts during birthdays and Christmas.
• Flexibility: Unlike custodial accounts, the funds remain under his control until he decides to transfer them, allowing for strategic planning based on the child’s financial maturity.
• Educational Approach: Andrew emphasizes teaching his children about money from an early age to prepare them for future financial responsibilities.

2. Paying Off a Mortgage vs. Investing Extra Funds

Question: With a low-interest mortgage (3.25%), should I pay it off using a lump sum from an inheritance or invest the money instead?

Andrew's Insight:

Andrew advises evaluating both financial and psychological factors when deciding whether to pay off a mortgage or invest the funds. Given the historically higher returns from investments compared to the mortgage interest rate, he often leans towards investing.

Notable Quote:

“If I was in this situation personally, I would not pay off the mortgage. Instead, I would invest those dollars and let them grow over time.” ([06:31] C)

Key Points:

• Interest Rate Comparison: The mortgage rate is significantly lower than the average return from the S&P 500 over the long term.
• Liquidity Considerations: Maintaining an emergency fund is crucial; depleting savings to pay off the mortgage might leave one vulnerable.
• Psychological Comfort: For those who are distressed by debt, paying off the mortgage can provide substantial peace of mind.
• Retirement Planning: Paying off a mortgage can be beneficial nearing retirement to reduce fixed expenses.
• Balanced Approach: Consider partially paying off the mortgage while investing the remainder to balance financial growth with debt reduction.

3. Safeguarding $100,000 in Savings

Question: Where should I keep $100,000 in savings if my future plans to relocate are uncertain? Currently, the funds are in a money market savings account.

Andrew's Insight:

Andrew discusses the importance of aligning savings strategies with time horizons and risk tolerance. For uncertain timelines, maintaining liquidity while cautiously investing a portion can optimize growth without jeopardizing accessible funds.

Notable Quotes:

“If you think there's a high chance it could be longer than five years, then you could take a portion of it and invest a portion of that, or if I'm okay...” ([18:35] C)
“Most people can get in trouble by investing their emergency funds, as seen during the Great Recession.” ([19:32] C)

Key Points:

• Short-Term Needs: Keep the majority (e.g., 75%) in high-yield savings or money market accounts for immediate accessibility.
• Long-Term Growth: Invest a smaller portion (e.g., 25%) in taxable brokerage accounts to benefit from market growth while acknowledging potential risks.
• Risk Management: Understand the implications of market volatility and ensure that funds earmarked for specific purposes remain safe.
• Emergency Funds: Maintain a robust safety net to avoid financial strain during unforeseen circumstances.

4. New Scam Alert: QR Code Packages

Topic: A burgeoning scam involves sending unsolicited packages containing QR codes that, when scanned, grant scammers access to personal data.

Andrew's Insight:

Andrew raises awareness about this sophisticated scam, emphasizing the importance of vigilance and proactive data protection measures.

Notable Quote:

“Honestly, these scammers are getting really good, and I can see how many people this would dupe.” ([15:28] C)

Key Points:

• Scam Mechanics: Unsolicited packages with QR codes that, when scanned, compromise personal information.
• Prevention Tips: Avoid scanning unknown QR codes and verify the authenticity of unexpected packages.
• Protective Measures: Utilize services like Delete Me to remove personal information from data brokers, reducing the risk of targeted scams.
• Community Awareness: Share information about such scams to educate and protect friends and family.

5. Finding a Fee-Only Advisor: Robo Advisors vs. DIY Investing

Question 1: Is it difficult to find advisors who offer tax and financial advice on an hourly basis without requiring assets under management?

Question 2: How do robo advisors like Betterment compare to traditional investing through platforms like Vanguard?

Andrew's Insight:

Andrew explores various avenues for obtaining financial and tax advice, highlighting the benefits and drawbacks of robo advisors versus DIY investing.

Notable Quotes:

“Robo advisors help you with things like tax loss harvesting and rebalancing your portfolio.” ([18:35] C)
“If you understand the fees, you can say, hey, is the service that I'm actually getting.” ([24:50] C)

Key Points:

• Hourly Advisors: Platforms like Nectarine and Facet facilitate access to financial advisors on an hourly basis, suitable for specific queries without hefty commitments.
• Comprehensive Financial Plans: Certified Financial Planners (CFPs) can create detailed financial plans for a fixed fee, independent of assets under management (AUM).
• Robo Advisors: Offer automated portfolio management, including tax loss harvesting and rebalancing, typically at lower fees (e.g., 0.25%).
• DIY Investing: Provides greater control and potentially lower costs by directly managing investments through platforms like Vanguard, ideal for those comfortable with self-directed strategies.
• Fee Considerations: Understanding and minimizing fees is crucial as they can significantly impact long-term investment growth.

6. Edward Jones Fees vs. Robo Advisors

Question: Are the fees charged by advisors at Edward Jones justified compared to using robo advisors?

Andrew's Insight:

Andrew emphasizes the critical examination of fees associated with traditional advisors versus robo advisors. High fees can erode investment returns over time, making it essential to assess the value received.

Notable Quotes:

“Once you get closer to that 1% number, maybe 0.9 to 1%, that's where it's really going to be taken away from your portfolio's value.” ([25:20] C)
“The less personalized the advice is that you're receiving, the harder it is to justify those fees.” ([25:40] C)

Key Points:

• Fee Impact: High fees (e.g., 1-2% AUM) can significantly diminish portfolio growth, especially over extended periods.
• Service Evaluation: Assess whether the personalized services and advice provided by traditional advisors justify their higher fees.
• Layered Fees: Be cautious of multiple fee layers, such as AUM fees combined with mutual fund expense ratios, which can compound to high total costs.
• Value Proposition: Determine if the bespoke advice and management offered align with your financial goals and warrant the expense compared to low-cost alternatives like robo advisors.

Conclusion

In this comprehensive episode, Andrew Giancola addresses diverse financial strategies for managing significant savings. From fostering early investment habits for children to navigating complex decisions like paying off mortgages versus investing, Andrew provides actionable insights grounded in both personal experience and financial principles. Additionally, he underscores the importance of safeguarding against emerging scams and making informed choices regarding financial advice and investment platforms. By balancing risk, fees, and personal comfort with debt, listeners are equipped with the knowledge to make strategic financial decisions that align with their unique circumstances and long-term goals.

Final Thought:

“Money is a tool to reduce your stress and anxiety. Optimize your financial decisions to maximize value and peace of mind.” ([10:01] C)

Additional Resources:

• Master Money Newsletter: Submit questions and receive personalized financial advice. MasterMoneyCo/newsletter
• Index Fund Pro Course: Learn step-by-step investment strategies. MasterMoneyCo/Courses

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