Ask HTM - Moving Beyond the S&P, Investing for a Down Payment, & Lump Sum Number Crunching #910
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Welcome to had the money .

and I met today.

or answering you're listener questions.

To get you switching things up .

with a little more stickers to .

with my delivery. Happy day.

everybody was just my AI voice.

please. AI voices now are seamless. The human, if you've listen to any of the google nobo podcast creators.

that sounds like most .

that up wins came to input a bunch of da, create what they think of pod cashes.

So we had one where you could essentially use A I to be an assistant and call people in your body and have a .

conversation was crazier. I still don't believe that there wasn't somebody in in a center because I can hear, like the call center people behind them.

I had mostly insulated myself from the realities of artificial intelligence. I don't use IT myself in any meaningful way. And so to see that I was like, oh my gosh, I if this is really this is not good.

some of the google products that are being rolled out where they are creating a podcast from scratch and they are mimmy's what they think a podcast he should sound like with a little things that unite to ten to say, like in between sentences where we're interjecting odd little sounds and and affirmations things like that the grows I make when you speak sometimes oh yeah ah things like that, things like they're totally incorporating that, which is kind of mind blowing up.

No, this is a list of question monday and we got a lot of investing questions to get to today. A listener bought some S M P. Five hundred and another asking like, what do I do now? It's more of a beginner investing question.

Another listener is asking about investing a home down payment. This is a medium sort of level investing question, also a medium term goal that we're saving for. So we've got all different levels.

Here's a more pro level question. Someone is asking about whether they should take a lump sum versus the monthly pension amounts. So we're going to cranch .

some numbers. Yeah, you want this question desperately. Yeah, we ll get to IT will get to IT. No need to get ahead of ourself. Well, and we asked that questions specifically, are you did because I went to somebody else for my advice on that and you were devastate ted? So if we give to tackle that on today's but before if I just met, I want to mention we have a new article up on the website about something called a rent investing. Think it's a new rent this term for something people been doing probably for that at least some people have participated in a different points in time where instead of buying a primary residence, you continue renting and the home you're saving up the home that you actually buy is located elsewhere and is .

your first rental property, which I didn't think there were maybe that many folks that did that. And so I started thinking for a second and actually, so we talked with was that last week, week, week. And that's what he's technical doing right now.

He lived in europe and I was over there. There was many properties here stateside. But I will say I do think this is probably a difficult thing for a lot of folks to do.

If you are looking to purchase an investment property that is long distance, right? Like best case scenario is somewhere where you used to live. So you're familiar with the area, maybe you able to get that lower mortgage rate because I was a primary for you and now you've moved on.

You you're living somewhere us, but you've held onto that as an investment. I think that's kind of like the best case entia. yeah. But I think it's a lot of you're thinking if you are currently living somewhere that's really expensive, you want to diversify, you want to get into real state and you're thinking, let me buy this town that I ve never been to before or maybe i've only been there ones like that tRicky man, like there's a lot a whole lot of work that goes into, I guess, getting that framework and that team together and to where you can make that .

purpose about the importance of having a team if you're going to invest remotely. And yeah, I think you're right. Like vent investing is possible.

We get article about up on the website about I think people should check IT out if are interested because if you do living one of those high cost of living locations, like you might be saying, think like we took a lister question recently from someone living in new jersey, like it's really, really expensive here. So maybe you keep printing and maybe, but if you really want to own real state, then you buy elsewhere. But you're right, there are some hurdles there.

We outline that in the peace jumping over. So our body I that because yeah just to keep things nice and simple, but he's currently doing this, which is what's so call about about that particular article. He's actually speaking from personal experience there, but I know said he lives in california and own's property in texas in expensive part of california.

fancy part of L. A. And he's never lived in texas. So it's not like he did IT because yeah, I used to live there and he's done deal well.

Although again, I do think that that is a workable situation where you are familiar enough with a town or I give you your home town, you have an excuse to go back there, say you're going back there over Christmas for the holidays, right? Okay, let me go check in on the property. Basically, if this is like a hallmark Christmas movie, what you're my .

favorite and you're .

like live in in the fancy city, but then you go home to visit your folks over the holidays, but always comes but twice in the plot, uh, your high school girlfriend is actually, you're turn IT and now you ve got a Victor.

What you oh, that would be.

I watch that one, would you? Yeah, but you're the high power. I never female atterley. You go back home and all man, the guy you had a crash on in high school who happens to be a hot fireman is living live IT in your priority, trying to uses two kids.

What do you do? Wow, you told I feel like you've got to a join hollywood coming up. chanel. I know I think you kind of down pat.

Well, just let me you know, we link to that piece in the channels, and it's just kind of an interesting way to to think about starting on your real state buying spray if you're interested in going that direction, if you feel like the stakes are too high where you actually totally matt, less mention in the beer we're having on the subsides. De, it's called breakfast anti mardian. IT is an imperial Brownie with lots of good stone in there. Wow, IT smells delicious.

So what you thought on this one of the of the but let's take your listen questions and if you have a money question we would love to hear IT just record IT on the voice memo of your APP send IT over our way we are giving away how to money socks mad for anybody who sends over a question that we take on the podcast through the end of the year that how money socks are covered, they are coffee. They um we will show everyone in the world and around you the U F style. So send us your list of question. We would love to hear that you can find the instructions at how the money that comes lash ask. Let's get to a question, the question you've been waiting format about whether or not to take a pension or to grab that lemon.

Hey, matt gel. This is trend from baron washington. I was so excited here. You guys talked about the lump sum versus pension options on last week show as that is my number one retirement question currently.

I thought about sending this question to my other podcast friends, when I heard how crashed matt was that he didn't get to help Angels numbers. How can I not send this question the map? okay.

So here is my options for my monthly pension. I have the option of two thousand, one hundred and twenty nine dollars a month, and that is with a seventy five percent survival to my wife. My lumpsum option would be five hundred and sixty seven thousand, one forty seven dollars.

And I would run that out to about the mid ninety. So let's say age and ninety five, if you guys can tell me how to calculate this or run the numbers and give me your opinion, I sure would appreciate. As far as I other rehire my assets, I have a little bit over two million dollars in some investments such as roofs, traditional iras, H.

S, in the majority being in a four O N K. And then I have about one hundred and fifty four thousand dollars in cash that I planned to live on my first year and retirement, and possibly by a used car. I planned to retire hopefully next year at the age of fifty five. So again, if you guys give me your opinion, I should appreciate you.

Have a great day. Finally, somebody that trust me trend. You want to be my best friend.

I trust you. yeah. And I don't know. We'll get to reject my numbers if if you're interested well .

and see if we arrived at different answers to the transaction. You might be like, oh.

actually very good inside. I thought about that. I'm glad you finally have a lump. Some verses like pension questions are up to me like .

question the numbers may is what it's all about. I love that because there's no bias. What IT comes to the .

number like is, is just black and White. What IT comes betwen to considered sure, there's the numbers that are important, but then how those numbers impact your lifestyle, how you live and and the risk reward ratio and other factors tecolote that's important, right?

This just give you a solid foundation to work from them, right? Others SE els, like you're building an argument or making a case on squshy swampy ground as opposed to something that rocket salad. We know that like okay, at the very least, we know whatever IT is that these numbers say that we can count.

that the numbers are informative um and if you don't run the numbers ah, you're liable to make a gut reaction that's naco. But if you run the numbers, then I think you can, in fact, in those other things, and that can help you make a wise decision. So assif congresses, by the way, to trend of being able to retire at fifty five, that's incredible.

He's obviously got his money stuff together. He's made a lot of smart decisions over the course of many years to send himself up for this ability, and I just appreciate his optimism. Also met on life expectancy trend plans on getting pretty close to senario status and see living in a blue zone there. I don't know state of wasn't is in a blue one, but trend hope you get there, hope you achieve IT he wants to live with mathues la age that was always person in he revival in the old testers yeah I don't think he's actually to get I think he's like nine hundred and something years I don't think trans actually.

By the way, did you notice that trend? Um this multimillionaire he's planning on buying a used car. I know if if you heard that trend is obviously our kind of guy I actually do think I could be friends of treat. Let's get down to the numbers, just get down to business. There are so many different elements that factor into this decision. And five hundred and sixty thousand dollars in one lump sum specifically, I think he said five hundred and sixty seven thousand, one hundred forty seven dollars got to be specific here, that is A A massive chunk of money but the certainty of two thousand, one hundred and twenty nine dollars a month in perpetual ity for potentially four decades that is that's that's pretty sweet as well. True especially if you live beyond that ah you live yeah .

but which .

one makes the most sense well, when you run the numbers. And by the way, so trendy actually sent along a sight called honest math, which looks awesome. I read up on IT and I was started by somebody who's in the industry and was looking for a product that was out there that was none bias, that wasn't trying to solve people, things.

And so which is why they call IT honest math. I can see that being a great resource for a lot of folks, but also swab, they've got a great calculator where I didn't have to create an account to access the regulators. I just do that. But when you cranch the numbers, you find that the lump s sum IT makes sense if you think you can snack turn that's greater than five point three seven percent. So you know the question kind of boils down to whether or not you think that is likely what you would expect to see from the market with that lumps, son, were you to go head .

and investing ah and and that might sound kind of easy. I mean, if you look in a recent history, same these accounts of cds, they were paying in that neighbor od, you're like, oh, five plus percent. I can that risk taken? Or you just look at the last two years, the stock market, you're like only more than five percent in in the stock market, this shows up like thirty percent, right? So this sounds very doable.

But I think you have to not just look at like the most recent history, but also kind of take a larger window um in order to make a good decision here. If rates continued to decline, we're talking about having to take on more risk in order to achieve those returns that you need, which means putting a decent bit of that lump on that you would get into the market. And this would be wise considering how many decades you're trying to fund anyway. Alright, like four decades of retirement here, but they're still risk when IT comes to making that decision that I think it's important also to mention that ages of factor in in trans decision, like when i'm running the numbers that i'm forty years old, tree is almost fifty five and he's planning on preparing soon. And so we're in kind of two different situations here where trend can and should be taking some market risk if he takes a lump some, but he might not be able to have as market heavy of investing focus as I can be given the extra one and a half decades that I have to endure potential downturn.

So some swings in the market.

Yeah, I think it's just important for trying to realize we're kind of in different scenarios here and that guarantee of return in the facts on the ground, they are there similar in some ways, but there are also different others. That's true. yeah.

I'll point out as well though that trend he did. He mentioned he's got over like two million dollars and other accounts. I think he said he's got like over hundred and fifty thousand dollars in cash he's looking to to spend as well. So that tells me I mean, that puts me more in the camp of maybe invest a little bit more aggressively because of the fact that he's going to be able to weather downturns in the market, get a little more don't know, there's little more slack in the leash if the market dives to to the left, it's like he's got time to basically respond to that and maybe brace a little bit. Yeah, I guess if it's a big dog.

you say that sounds like based on the way he lives and on based on what he's been able to a mass as a next day over time, he's got more flexibility.

the average person. And so if this was his only source .

of dollars in margin, that would be different. That's right. You almost like are forced to take the guarantee pension because you don't have that ability to take on additional rest.

That's exactly right. I guess, see the other factor too. He mentioned some of the different assets that he has. He I don't think he shared what his cost of living was like, how much she's looking to spend every single year. And so I don't know maybe that one hundred and fifty k that could last unior between six months actually. I mean, I could lass you one month on your list yle or could lash you like five years.

He's pop in bottles to the club. We'll see all night.

every night. But the why like you are making an educated guest, right? This is a strategic bet. Uh, when you make this decision, like you you even making a prediction about how long you're actually gone to live and not everything comes down to the numbers.

Say that again because I don't think I ever heard you say that before.

Do you to take behavior, you're going to take your psychology, what you're willing to ensure account as well.

Taken my point of view, what part of the decision does come down to your risk tolerance? You know how much of a financial buffer have you built up? How flexible do you plan on being with your spending in retirement? Because if your goal if you simply are only looking at the numbers and your goal is to maximize those dollars to the absolute fullest, let's say you ve got a higher risk appetite while taking the lumpsum and investing those dollars in the market, that can make sense.

If I were to be the case, you could certainly, I think you can see your network grow more quickly, offering you more optionality. And those numbers two, that that we mentioned the needing to see a five point three, seven percent return in the market. That's also assuming that your pension has a cost of living adjustment built into IT.

And not all pensions do. Most government pensions do, but not all do. And so basically, if you don't include that, we run those numbers based on two percent, then you can count on needing to earn less than that two percent, less than five point three seven percent. So you're looking at at three point three seven percent returns from the market in order to earn more than what you would without pension.

yes. So at this comes down to whether or not how much risky feel like you could stomach and or if you prefer certainty, and there is a lot of certainty that the monthly pension check provides, right? I would provide a solid benefit for for your spouse as well if you don't make IT to ninety five and he does and if that feels like a security blanket for youtube. And I think that something that needs to be discuss between the two of you, that's understandable, that choice can make sense.

And if you often the lump sum, right, you ve got to be ready to take a massive show taxi alongside the risk in the year that you take IT, right? So if twenty percent is withheld from that lump sum for tax purposes unless you roll IT into an area, and that would really be the, I think the only way that taking the lump sum makes sense is sticking IT into in ira. I mean, otherwise the single year tax bomb would probably be .

too much to bear. So IT would be massive. The most pension issues take that twenty percent off to be compliant to the irs. But it's likely I mean, assuming you're still earning money from your job, your effective tax rate is going to be more than twenty percent, like much harder than that, I guess not much hier, your marginal tax rate is going to be much higher.

Most likely the family for sure, in the long song above and beyond what you make in your day job will be taking much higher rate. And so that's why taking the lump on as a cash payment yeah is like really scary from a tax expect.

There's a whole yeah a lot of dollars that you're giving to the government all at once. And ultimately, I think this decision boils down to your your primary goal trend.

No is IT to maximize return s and hopes of amassing a bigger nest g to increase spending and retirement enjoyment or even, you know, if you want to kind of give some that money away? Or is IT to minimize the downside risk that you're onna face? I don't think whichever way you choose, I don't think other decision is right or wrong.

And of course, since none of us can predict the future and when IT comes to mark returns or when IT comes to our own mortality, I think you know we're on the best we can with information on hand, and I think you're going to make the best decision as well. So trend, thank you for making my day and allowing me to get nerdy and chrysos numbers. Joe, we got more to get to.

We're going to talk about annuities here for a minute, which is not a typical topic on how the money we will get to that more right after this. If you're looking to take your money game to the next level, then you can keep doing the same old things that you've always done. Maybe you are saving up for a wedding, or maybe like A A lot of folks are socking away money for a solid down payment on your new home.

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We're back to get more of your questions to get to on this episode. Matt, we've got a question from a listener who is ridiculously good. Planner.

hi Angel. My name is sam, and i'm from same palm, minnesota. I found this podcast factory covet and I love the content advice you share. My husband and I are planning on buying a house in the next three, four years were in our early twenty years. And right now we love the apartment living, but we know eventually we want to settle down.

Right now we are lucky enough to have great jobs we love and very low expenses, so we are able to save half our income each month. Knowing interest rates will likely be falling soon. We're not quite sure where the best place to save our money is.

I've been recommended going through my local credit union and doing A C, D or money market, but i'm not sure with the process and cons are to each, please let me know your thoughts and what you would do in our situation. Sam, i'm so glad you found how to money back. Did you say back during the pandemic, like those were years that we all needed a little bit of additional guidance as to .

what was going on in the world? H, things were changing crazy times. That's when the friday flight came about because indeed, we are like way to second.

I feel like we need a show, everything a week to talk about all the crazy things that are going on. A lot of moving parts. Yeah, i'm glad we have kept around. But man, I feel like I was like a point of listening. We fall compelled to create that.

So I totally, but use the phrase lucky enough. And I think that's really important because I think luck is a significant factor in all of our lives. But you have also made choices that have set you up for success.

And how many folks are able to save fifty percent of their income? That is a tall order. That is a sick is of a very nice savings rate, right there. And I want to just encourage that the choices that you'll have been making or absolutely working and they're going to make buying a home, in your case, three to four years.

it's going to make that a reality. Yeah, I was just talking to one of my body's math, and he was saying he's got a friend who makes six hundred thousand dollars a year and is done kind of consistently living pay check to pay check and doing good. And I was thinking, if you put that money in my hands and told me I had to spend IT, I wouldn't know what to do like I I feel like.

how would I going to spend IT on?

I would take some work. But you find a way vision feels like doesn't like like I yeah these who gave ourselves some credit because there is a lot of people out there who make a whole and more money than he does, who are spending the bulk of b yeah is spending at all. And so having a fifty percent savings rate is nothing things.

I think that's a part of IT. Like you maybe think how I that IT would take some work, and I think that's exactly what I would take because you get used to doing the things that you do. And so you get like if you're used to spending money, you just get Better at spending money.

And you just as you earn more money, you're like one pretty good at spending money. Watch this. Yeah then they go often, buy this, buy them. But like when IT comes to being fruit and finding ways to question the things that you're spending money on, like you get Better and Better at that, I think IT often times you find yourself drawn to one or the other. It's almost polarizing. I know this difficult fines, somebody who's living in a sort of balancing where they're able to connect with the sacrifices they are making in the here. Now to some of those, in this case, medium term.

short term goals. In this case, you're right. It's like, hey, this intentional potentially what might feel like to some excessive frugality is leading to this end game that's going to be incredible for for shiner or spouse, right? So I love how far they are planning ahead right there, content with the apartment living, but they know that only in the home is a medium term goal.

And there's just way too many folks out there who decide what this year feels like the year for home ownership. I think going to turn to buy one in twenty twenty four I want yeah exactly you like no november spring buying season that's what i'm going to jump in on this thing. And then they started thinking about how to a massa downed.

But but they haven't given themselves a long enough time meine. They don't have a right way. I means they don't have enough to put down.

They have to settle for a home that they would otherwise up the purchase. So they take on a mortgage that's beyond their means right there. Oh, okay, i'm going to put three and half percent down instead of ten percent. And so my mortgage is a little out of control. And guess what? It's even on like this starter home that I don't really love, and I don't plan on being in for very long, figuring figuring out those goals in advance, well in advance and in saving dillion gently IT makes that endeavor joyful instead of fought with totally.

I think a part of the reason for saving so dying much of their income, that this is such a big win at this point time, is that sam and her husband can be reaching not just a new home, but I think they can be reaching multiple goals at once. I'm guessing that the investing a decent chunk of that massive savings rate while also having plenty of money leftover to funnel into savings for that down payment.

And I think if their savings rate was just more typical, right, like even if he was just like twenty percent instead, I think they would might have to end up scrimping on one goal the other. Do you know whether maybe delaying financial independence for the down the road or maybe they're really focused on financial independence and said they're gona forego home ownership, saving fifty percent is it's adorable and it's not easy. It's not easy.

They may not be able to keep IT up for enough for forever makes me think of our body. Jordan remit A K, A dog g that he'd always talks about front loading the sacrifice. And that is what sam is doing. And I think certainly in three, four years now, I think they will be glad that they did.

Yeah I holding that pedal to the metal for a handful of years early on can mean that you can relax your foot significantly, let that tesla auto drive, matt, take hold or something like that? I don't know. never. I've driven a tesla once. I never done the out of thing i've been in tesla that are on out of drive is scary, scary for you.

What's but I think I think that is the kind of scenario you can expect if you have that significant of a saving strait for a disappeared to time in those early years as you just have so much more optionality, so much more flexibility a few years down the road. So on to some specific question, where should we save those dollars? I think A C D can make a lot of sense right now, a certificates deposit.

That's particularly true. I think when IT looks like and we don't know how much, how far, how fast. Interest strates are going to decline, but IT doesn't like they will decline more in the coming months or years if you're lacking up those funds for twelve to eighteen months and ensure that you're going to continue to receive a higher payout, right as the highest same account rates go down.

So right now, still pretty solid, but those are likely to get worse and worse because right when the fed cuts rates, guess so goes down ah not the rate to borrow money often times, but the rate on your savings typically goes down immediately. And so this is particularly true because liquidity is not a concern for your dollars right now. It's not like your you're saying, oh, but I might need to tap some of those just in case you have A A A kind of a targeted window of three for years.

So has a known time land. Yes, I think lacking IT up should shouldn't casually any inks. And so one of the things I think SHE mentioned was going with her local credit union.

Well, that might or might not make the most sense, right? Because rates on cds and savings products come very wildly. Is your credit union competitive in that space? I mean, maybe but maybe not.

I think the best place to compare uh city rate and in high occ country rates too is a site like doctor of credit 到 com。 And we're likely talking about here matter when he comes to a lum, some down payment. We're talking about a big, big heart truck of money.

The extra half percent or one percent IT really matters on something like this where we're talking about i've got three thousand bugs in savings. Should I go from the four percent of the five percent account now? Probably not worth jumping to those hooks, but IT is worth opening up an account at another institution if we're talking about a significant bump in interest, right yeah a big chunk of money that they hold .

you yeah in specific to their time when I did a quit a quick google and depending on how quick you are to get out there and get session. But I saw a three year CD at a credit union up in michigan that I would takes as a final donation to like some sort of local charity and bomb. You have access to this three year four point three five percent certificate of deposit, which might be like totally perfect for three year window.

But on top of that, I mean, I think chances are that she's going to have new savings flown in every month. And so I think he can open up A C, D with the bulk of her current settings pile, but then final additional incoming dollars into just like a basic high savings account or even a money market account, the best of which are still, at this point at least paying north of like foreign quarter C I platon savings account. IT has IT has been an upper restin account for years now.

And we to kind of go this approach like you are protecting the bulk of your dollars from declining interest rates and then you're getting the best current rates for these new savings dollars that you don't have on hand. Um the only other reason I sort of question this is one other thing that you mentioned was that you love and this is this stood out to me because not many people love living in an apartment. But you said that you said that we love apartment living right now.

And so I would ask you, how flexible are you when IT comes to buying a home in three to four years? Because if you have a little bit of flexibility when IT comes to your timeline, and I would be so tempted to invest those dollars as a like straight up in the market, I have some numbers illustrated. I want to question numbers again.

Do IT the means going to say yet three year window, it's too risky. But if you can t bump that window out to five or six years, investing might make the most yeah .

you look looking forward to five years because so the media according to feed the medium um home today is four hundred and and twenty thousand dollars so you're looking at a downy's of eighty four thousand dollars. And let's just say because they've been saving fifty percent of their income right now, they might already have that that cash in the bank.

And so if you were logistics into a high ele savings where you're earning, let's say, four in a quarter percent that eighty four k is gonna grow to one hundred thousand dollars in four years, that's solid. And I guess it's really nice. But we're you to invest that in the market.

And historically speaking, you're looking at ten percent in the market. You're not just looking at one hundred thousand dollars in four years. You're looking at one hundred and twenty three .

thousand dollars .

a lot more buying yeah .

like that's a money afford maybe slightly more house and he thought or you can produce that more famous significantly .

gain more favorable terms like I would be so tempted, especially again given the fact that your sounds like you're all about apartment living, you know you're lake don't friend new with the good time i'm living in department where I don't have to keep up with the new maintenance. And so for you, just in your specific case, say, I wonder if you we're you to experience declines in the market. For you want to say, all right, what just keep paying out here.

it's a blast. Just punt home on erp.

oner down the road, wait for the market to return.

I think the two things rist tolerance in timeline. So yeah, how are you feeling about those things? And if you do have that flexibility to punt, then I think matter suggestion is a good one.

I think if you're like love in now, but three years or now, we know know that we're gonna a house have triple how you that time but if you know that like mothership, somehow if you clear and please give me call about the questions for you but that's the that's the kind of thing where if you know that's coming down the pike, then you're like, well, home otherness is not negotiable in three years than investing is, I think, too risky. But if you get that flexibility, you can change the time eline. Then investing makes a good.

Better sense. Joe, let's get to our next question. This is the question that has to do with a pretty sizable in americans.

Hey, met joe. This is Justin from iwa. Go hawks.

Really appreciate the podcast. You've learned a law from you guys. So thanks for doing the good work. I got a two part question for this week.

I, A relative who recently inherit large some money and ask me for advice on what to do with IT. SHE just turned sixty, so putting them in iron ray does not make much sense, so I suggested a broker account. SHE didn't like that idea because SHE didn't wanna risk losing any other money.

He just wants to save place too. Put IT until you can figure out what to do with the long term. SHE was thinking of buying an annuity.

I know from past episodes, you guys are not the biggest fans of annuity. So here's my two part question. One, what are the details of an annual? Is IT specifically that you don't really like about them into?

What would be your advice to this family member of mine on where he could put IT temporarily that would give her some return and not risk losing any of IT until he figures out what he wants to do with IT? thanks. Appreciate to show you guys are awesome. Keep up the good work.

Oh, map, love. I love waiting in the financial drama between family members. My favorite thing, put me in the middle. I'll referee. This thing is not like I one.

Justin was losing money to a cousin and now that cousin is refusing to back and they've just they're y're looking ahead of thanksgiving and they are awkward. And that would actually be more fun to weight into.

Let me solve that problem, please. Thanks, having brings out the best in all of us and all of our family doesn't. Yeah, I thinking, ving IT so depends on what your families .

like them I love I man, what about thanksgiving after presidential election?

Yeah IT depends. I mean, IT IT depends on what your families like. And if you all are reasonable and you put your relationship ahead of your politics, which that's true, provo out there, I agree.

First things, first time eline. I feel this is something that kind of keeps coming up. But timeline and rist tolerance.

or this is the investing as cattle money episodes. Is there anything more fun to do than even a bunch of money was pretty N I guess you could spend IT, if you like, the friend that was making six more thousand dollars. But for them, maybe investing isn't much fun. But for the rest of us, we are looking to grow or not worth .

there were the long term. But right that the two things when you're always talking about, well, what sort of risk I take in, what do I want to um to see from my money in terms of returns? Well, how much time do you have and how much risk d fili are able to bear? Those are really factors for what you choose to do with the money in your possession.

And IT sounds like Justin, your your relative here is fairly risk verse. But I think if the, you know, conversation pathway is open, I would want to talk to her about the risks of not taking much risk or and in inflation, right? This is the perfect actually time to talk about inflation with somebody else. IT has always been and always will be kind of the silent killer when IT .

comes to money is .

not invested like carbon monoxide yeah it's like smell if the and so given what we've all experiences over the past four years or so though, everyone viscerally understands the reality of inflation. So it's not like after even explaining IT all too much is like true baking eggs or insurance costs. Whatever IT is, whatever you want to point to your relative is going to understand the impact that inflation has had on her life.

The trouble is, people don't always know how to counteract the negative influence of inflation, how to kind of beat what inflation is, trying to do your money, which is to make IT worthless over time, and you saving that money, yeah, you might be able to eat out a return that's slightly higher than th Epace o f i nflation. But we also don't know how long that's gonna with your rates going down and the rate of inflation not seeming to want to go and eat at two and five percent mark math. So I think now as good a time as any to kind of have that conversation run inflation and what needs to be done in order to ensure that being too risk sensitive is actually one of the risk is the things .

you can be as well totally. yeah. Risk folks tend to want to avoid IT. People often think of the stock market as being potentially risky, but due inflation is a known risk.

And the Price .

we under value, yeah yeah. And know the Price we pay for attempting to eliminate risk and gain more certainty that typically causes us to miss out on upsides. So what is IT that your family member, that your relative here, Justin, should do? Well, the tax adventist account.

I think that actually could make sense. You mention, uh, how she's sixty, and maybe that that is something that doesn't make sense. IT has less to do with her age, and I think he has more to do with what IT is. She's actually gonna sting the investment choices inside of that they met yeah like there there's no age limit on contributing to and I ra, I guess he just needs make sure that he hasn't earned income. But the investment that go inside of that irrate SHE doesn't have to go all in on like a one hundred percent basket of stocks depending on a few other factors like that would would probably be an unwise investment at age sixty. But i'm thinking about like a target date fund that could offer the best of both worlds where it's gona give horse m needed market exposure A K A risk while not being invested in a way the generate over the top amount of risk.

Her because yeah because like when you're sixty, you you don't want to be like let me go one hundred percent on in video because it's been rocking unlesse what happens? Maybe they go from a three point whatever trillion dollar company to a six trillion dollar company and now i'm for life like um that that would be too risky at that age and honey, it's probably too risky in any age for anyone to to participate in.

But trying to avoid investing risk completely, just put your relative in the position of running out of money, which is another risky scenario we like her to avoid. And that sounds like for some reason she's keen on annuities. I would be curious, this is a place where I asked questions also, why is that? Like what made her think that annuities were the right solution to this problem? And just I would ask, this specifically, has SHE talk to a financial advisor who sells the unities, right? Because if so, it's important for her to know that, that advisor stands to benefit with a big commission check right at their route.

Annuity are an attempt to take a sum of cash and to turn IT into a recurring monthly checking. That's not necessarily a bad thing. The problem is that a unities come in a whole bunch of different flavors, some of them more expensive than others, and some of them more or less bad than others.

There they exist, kind of on a spectrum, but the vast majority are complicated. They are expensive. The basic commission is only one part of the cost over the top surrender charges. Let's say it's another horrifying future that many annuities come with.

And so if you know he didn't cost an army and a leg, we probably wouldn't dislike them so much because they can give people predictable income over an extended period of time if they have a lump sum, and they don't have access flexibility in their lives like they need that known quantity of a predictable monthly payment and renewal can make sense. But just so many of them are brought with high fees, high commissions and gotch's on the back end. That's what scares me about people going with anew unities, especially they don't know what they are doing .

totally yeah I mean, you mention the story charge IT sounds like he is gonna want to do something with his money. He just doesn't know what he wants to do with IT yet and made to pay out the nose to get that money back out of that unity would a situation I would not want to find myself in.

But when IT comes to some of the different advisers out there who are selling annuity, there are some products that are far more favorable to the end purchaser. There are some different commission free annuity. But the other problem is investors often don't understand how the unity they are buying works. This is according to jd power. That's obviously not good people, really complicated products .

often because they're sold right yeah sold to them. They're talked up to them and they're saying, well, you have a nice suit on you sound like you know what you're doing. I guess I should trust you. I'm going to buy the annual ity you're telling me about. But when the when he comes down to IT, most people don't understand how they work and what they're seeking their money exactly.

And again, that sounds like they might want to do something with his money. SHE just doesn't know exactly what he wants to do with yet in getting IT tied up into an unity sounds like a not that would be difficult to untie, but the only annuity that we are a little more sympathetic towards are immediate annuity.

And your relative might be a good candidate for that because he would be turning that lumps sum into a dependable monthly check at a lower cost. And you can get these from lower cost brokerage of their light fidelity instead of going through an actual insurance sales person. That's one of the bigger differences. It's just it's almost like a completely different product because of the fact that this isn't something that has favorable terms for whoever IT is that is looking to sell IT and .

to make a profit off of IT. And it's kind of buried on the websites of decent financial station like fidelity because fidelity is so good at doing so many other things. Annuities typically are on the the way back burner for them.

And that's why most of the time, the only ways people encounter annuities is from these high commission and certain sales people. And there's a reason they're selling IT because that's what puts food on the table for their families. But typically, it's at a disadvantage for when IT comes to the financial terms involved in that annuity, which is why most of sucks.

Yeah and something else that that he said is the fact like that she's looking for a temporary spot, which tells me that he doesn't SHE doesn't sound like she's needing this money to live off. Basically he is like, if you need this money to live off, if you're not trying to figure out what to do with this money like you are like, oh, I need to start drawing down on that to pay the bills to be cover groceries.

The fact that SHE an ethic cation you wanted to last, one of those immediate annuities might make that.

or even just investing IT if you don't need the money at all. Like I feel like this is another instance where they just sticking IT in the market. IT could make a ton of sense, even though she's resistant to expose that money .

to the overstock market.

So I guess what I would do is I would ask, where did that idea come from? Like who place that? what? Who invented that idea in your brain? And and so why do you think that's the best way to go and talk about the the downside risks of inflation and how important is to combat that and how taking at least summer risk and measured risk makes the most sense to be able to extend those dollars, make them work for her for an extended period of time, locking them up into an expensive bunny probably isn't the best decision.

Allow host note, maybe depending on her circumstances, but hopefully you got some good thoughts starters for that conversation. And however, you can help her ask some those important questions to drill down to fy the right decision for her. We've got more to get you on this episode and we've got to investing. One of one question we're got to get to will hit that up right up for this.

right? Let's talk about the fear of the unknown because often times I think it's the novelty or even how infrequently we talk or think about something that causes us to abandon even addressing IT at all. Okay, you follow me.

And that's actually whether reasons we have our show to make talking about money less to do. I've got similar feelings around starting a business. IT doesn't have to be all that complicated, but I definitely think the same story when IT comes to a state place creating a will or a trust.

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Let's continue with our investing focused episode today, of course. Now we've got to get to our facebook question of the week, which is from macao. Is that how you would say this?

okay. This was not somebody .

who send us a voice memo. It's written out over in facebook. But Michelle te, so I am wondering something. I hear that one of the first things you do to invest is by into the S P F hundred index.

But what does that really mean? I have a fidelity account and there isn't much there, but I bought one S M P five hundred. And assuming that's a share, how much do I really buy? Or is IT like a one and done deal, joe, is Michelle done with investing? Rather they set one year so you you're fine.

Or should they keep at IT? Well, no, I mean, I think this opens up actually a limning of questions really. But maybe first we should say what the S P hundred is and basically it's an index of is a collection.

I guess we shouldn't use the name of a the collection of companies and you're .

buying sliced and dices of each one of these companies, five hundred companies at one time when you buy a single share of an S P five hundred index fund and so that .

I got S P five hundred.

you own small, small amount of apple, a small amount of NVIDIA, a small amount of tesla, coca cola. I mean.

there you can go front of dell, which was most recently added to the S M P.

OK. So we can named four hundred and ninety five more companies. But we won't.

We relents. But basically that's what you're going. You're becoming an investor. You're becoming a partial owner in every single one of those companies, which is kind of cool. You think about IT per cool.

I makes the best thing.

people of other like the cool thing out there. Yeah I love IT. You don't run the joint at any one of those companies, but you have a stake in their success.

So I am all in on the s of five hundred folks wondering ah I don't do the total stock market. I like the five hundred biggest companies that are out there. Another a little side S P, if I understand, you know, do you know how often they rebaLance and side what companies get to be a part of the.

I don't know. I saw that in video just made IT into the door Jones, which is the different index with far fewer companies.

But going to say once a year, it's quarterly four times a year. And I think I saw that interesting enough. American airlines as well as eti, they both got the boot. Oh yeah, there are no longer part of the other club.

And so that is the the I think selling point for something like A S M P five hundred. And next one is that it's self to certain next time as well, right? They kick out companies who aren't holding up their bargain. So get you small aren't being treated. And all these indexes do that right because when the door Jones took on invidia, they kicked out intel and saying, listen, you guys, you guys slap in the face yeah but IT makes sense, right? IT makes sense that investors at some point don't want to own that index if it's holding on to too much cracked down.

Jones was like, I want some of that new thing over there that invidia l you're cool, like twenty years ago.

cut up with the times and so I think this this is a huge for Michelle. Like, congrats, this new beginning becoming in the investor and that I don't know about you. I still remember those early months trying to figure out all the terminology around investing that there are contribution limits, are different account types, there are different index funds.

And so I can feel like a firehose of information coming at you. Yeah, I get that. And so that the whole goal, this podcast, if you listen over long enough time, is that you become super familiar with those terms that you feel confident in your ability to invest and make money.

One of the the biggest mistakes that early investors actually make is sticking money into one of their taxes of engaged retirement accounts. But then they don't invest the money. It's like sitting on the sidelines in cash. Yes, it's inside of the account, but you didn't buy a fund inside of that mccalls not making that mistake least he has bought shares of the S M P. Five hundred and this is the getting now he is actually an investor.

That's right. yeah. And he's also doing business with fidelity, which makes him a genius and he think is multiple steps long. You're going to get the ultra low cost funds that are over there. I'm taking of fz rocks, for instance. That's the total style market fund that a lot of fire folks are all about, but they don't charge any expenses on that fun.

But i'm curious which career because most ones have, even though minimal, they have some sort of .

the expensive even so like but fc .

iraqis is one of those things that people I think they're like four six of those funds yeah .

and it's cool because like they're role that out maybe three years ago, git three one hundred percent free like were talking about the actual things that investing in the we're talking about the the package, the passengers that you would put in the vehicle. But let's talk about the actual vehicle because i'm curious which account you are investing in because our favorite, almost all new investors out there is to start by getting the match.

First of all, in there, you're four O K, if you've got one of those, but if you don't have one, the raf I ra is going to be your next bet. And that's because of the tax advantage nature of the after that a taxable program count is what you what you're going to look at that usually reserve though, after crushing IT in those attacks, advantaged accounts for years. And that's one of the things with fidelity.

I thought to myself when I spent a while since i've open a new account with fidelity, curious to see how they position or how they lay out the choices, was surprised to see that IT felt like the defauts option was the brokers account. They actually call IT the fidelity account with a little trademark, little symbol after IT, to make IT seem like, oh, this is the one that I should be, I should be choosing. It's like and I don't think you're doing IT maliciously. I think it's just maybe like just poor like user interface kind of thing.

but should be highlighting .

for most people the roth I right? Yes, yeah. Like that should be the first, I don't know.

I mean, we are knock on a lot of those. Those are different new, newer brokers. Firms like rob, specifically for a long time, they didn't have access to any retirement accounts in those are .

that's the first thing you should be focused on. But yeah, that kind bothered me a little bit. The fact that and they are even highlighted that they're like you can get investing with just one dollar and made IT seem like sort of the entry point for most folks and that that's the one sort of thing that stood out to me that I thought me and I don't really like the fact that IT seems like they're student folks to that. Again, I don't think you're doing that intentionally, but you want to make sure that you are contributing first to your .

rather a percent. And this might sound counter intuitive but also don't invest too much too early um like check out our seven, twenty years on the website because we just don't want you investing too much um and then having to pull IT out in an opportune time. You've share the story before on the pod about how you open up the roth ira. You stuck money in and then you're like wait a second because I heard that was the ticket to yeah being wealthy I don't have any lift with cash anymore as and I need to pull money out from the rough and like IT was far too soon.

It's not often that I make mistakes show.

but what I do there are big. Well, I like the two. You've have remained your life here on the show on a relief basis. And so IT, basically, if if you are investing, if you're sticking the money in, make sure you have enough cash in liquid reserves in same easy account so you can leave IT in the whole goals to invest the dollars for decades and they continue to invest more dollars. That's what's gona lead you down the road of financial independent.

So set up a recurring investment into that roth ira buying an index fund like fz iraq's like that mentioned or a similar fund so that you as our friend nic majorly, I would say, just keep buying. And it's really not much more complicated than that. There are some people out there who might want to make IT sound like it's rocket science, but pretty simply, it's choosing the best tax of enter account with low costs and a diver well diversified index one and sucking money and regularly over the course of decades.

And you'll wake up one morning and be a way to second. I've got high six figures. I've got seven figures going on hand. How did that happen? That was just doing the right thing on repeat for lowly, right.

But go get back to the beer that you and I enjoy doing. The subset, which was a breakfast, a radium by monday night brewing. What your thoughts on this?

Somebody do I, all I can say is that was fantastic, so good, absolutely lovely. And this is the perfect fault. Er, I love a good imperial Brown al brail. We talked recently about how regular Brown nails kind of suck, but like imperial Brownlows or wear at that. And this is a perfectly .

regular Brown are good if you're not looking for something that's quite as basically as this guy.

Sorry, I want to be Sally. And this one was aged in maple urban barrow.

and the maple is strong with this one is so strong.

but in with the coffee and mila, it's like this.

you're sit down the breakfast .

breakfast I made heaven.

It's like you enjoy some paying cakes with the maple sir up poured over time along with a nice mug of some freshly brood, preferably ground in the burger grinder port with A V sixty porosity P A coffee. He lost me their exercise. I heard of these terms. He says, thinking, good. So you, I don't know if ever told you the story, but I was shooting an event at night night growing. There was a wedding and Peter, he had recently taken over, as had remember there at night night and was like, hey, much casino was in the beer this is like fifteen years ago but even then he's just, hi, I know you're into IT when you come back here and have a taste and I got to have a taste this like straight out of the giant. I don't know.

Big silver thing was.

I think at that point time, I knew that money. I had made an excelling decision in hiring him. He he had a wine. He was like a White style. He had a wine background and then came into the beer scene and quickly turn things around. And they came the money night and some of the amazing beers that they were that shortly after him taking over, that they were putting out there.

But I mean, they were is still so good. They went from a five to attend pretty quickly when Peter started making the bears. And this is, there are fine.

They're solid back in the day. But man, this is one of the .

finest examples of his work.

He took IT to A A whole new level. And this is the first time that that I never had. The breakfast vary, which get all these additional ad junk play was going on, makes IT an incredibly job sometimes to share these.

And jokes are overpowering. Or I hate you when IT changes the texture here, right? When they don't do .

a good job filtering IT out or may filter a great beer .

with like solidus higher, it's like getting A A really nice look in Christmas tree. But then you ve also got the beautiful experiments because if you just get like a crony look and tree and you put like the silly charly browst yle yeah.

then it's just sad. You like a wonderstone.

We could have done Better, maybe with the original tree this had at all. But but he is going to be IT for this episode. You can find, shown its up on the website at how to money that come and make sure to link to some of different resources that we mentioned, including a link to that website on this math where if you started want to quench the numbers, you're getting a little bit closer to retirement.

Anyone to see maybe how long your money is going to last? What's amazing about that side is they run a bush, like they run a Monica olo simulation on IT, and they run through like thousands of different, and they give you the average, they give you the medium as well. And then you can make an informal decision from there.

like what mate silver is to political polling. They are to your money and retirement simulations. right? right? yeah.

You can look for that up and how to money that come. You're going to take us out. sure.

That's going to do for this one until next time.

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