Well! Hi everyone, and welcome to another wise money tools video. This is Dan Thompson, glad you could join me this week. You know, an interesting thing happened on Facebook just a couple of days ago, I saw a post from I guess you consider this like a second generation person. Anyway, this is what he posted. He said, for those of you who have stocks and bonds, do you use an investment advisor or do you self invest in an index? And he goes on, he says we have an account with Stifel, but I'm not overly impressed with the performance. And we've seen that we've seen in the fees that they charge any recommendations. Well, the floodgates opened. I mean, a lot of people have opinions on stocks and bonds and all that good stuff, right. Well as the advice came pouring in, it was kind of like a train wreck for me. I just couldn't look away. First off, you know, he's right, big firms like Stifel and Fisher. And those kind of companies that do a lot of advertising, typically aren't the most competitive in the long run. And then he's also right about fees. If you watch my video just a few weeks ago, where I talk about the negative compounding effect of fees, you can see just how devastating they can be. Anyway, what I wanted to do here is go through some of the suggestions or the feedback or the comments that he got. And I want to know what you think about these comments as well. But here was the first one. The guy says, Well, we self manage, and you can too, you're smart, you can do it. I've averaged much better returns myself, as I'm more willing to assume much more risk at this stage of my life. Advisors tend to be much more conservative, understandably Okay. First off, he says he's averaged much better returns on his own. And I always have to ask, Well, what is that compared to what or to? Or to whom are we comparing these returns to a guy like Warren Buffett or to your local barber? Now, maybe he's used a financial advisor in the past who just bought a mutual funds. And you know, I think just about anyone can pick mutual funds as good as an advisor, if not better and could save a bunch of fees as well. So maybe that's what he's comparing to, however, and this is where I started to cringe a little bit. He says, I'm more willing to assume much more risk at this stage in my life, and advisors seem to be much more conservative, understandably. Now, my thought is going back just a few videos, where I talked about the golden goose. And I talked about how many compounding periods you get in your lifetime. Now I remember those days as a financial advisor and being told, it's okay. Take risk while you're young because you can recover. Well, folks, I may tell you, you really can't recover. If you lose out on a compounding period. That could mean a lot of money and very hard to recover from. Now, let me explain what I mean by that. Suppose you have six compounding periods in your lifetime. Now, we're gonna use seven years as a compounding period because everyone likes to get or think they're gonna get 10% on their money and investments over time. And the rule of 72 says if we divide 10 into 72, money doubles every seven years. So every seven years our money is gonna double. That means in our working lifetime, let's just say from age 25, we'll go to age 67. That gives us 42 years and exactly six compounding periods. So What happens at age 67 in this case is you're probably gonna start taking some income from your money. But hopefully, if you've got it in the right place, it's gonna still continue to grow and compound, even those last 20 or 30 years of your life. So all told, maybe you're gonna get the six compounding periods while you're working. And then maybe another 3 or 4 compounding periods after age 65 or during retirement, depending on how long you hang around on this planet. Okay, so just for the sake of argument for this example, let's say this guy's 25 and he has $10,000. I know, not a lot of right out of college students have $10,000, but just hang with me for just a second. So it would look like this if every compounding period grew and he didn't have any losses. So period 1 would go from $10,000 to $20,000. Period 2 would be $20,000 to $40,000. Period 3, $40,000 to $80,000. Period 4, $80,000 to $160,000. Period 5 is $160,000 to $320,000. And then finally period six $320,000 grows to $640,000. Now what I want to point out is that each compounding period built upon the previous compounding period, right? Notice that the largest gain though, was that sixth compounding period. Even though it's the same return, nothing changed in that regard. But it was substantially more. In other words, that sixth period went from $320,000 to $640,000. So it made $320,000 in that last compounding period. And think about it $320,000 can make or break a financially sound retirement. Now, tell me If you take more risk as the commenter suggested, what yours Would it be okay to lose money? And are you okay to miss out on the compounding period in your 30s? Maybe compounding period two or how about in your 40s? Maybe compounding period four, you see what I'm saying? The answer really is none of them. You can't afford to miss out on any of those compounding periods. So it's silly to think just because you're young, it's okay to lose money you're gonna make up for later missing just one compounding period would cost $320,000. Because again you'd only have five compounding periods instead of six. If he just missed out on one. See how expensive that can be just to be absent in one compounding period. Now, just for fun, let's keep going after age 65. And he's got let's just say three more compounding periods. So compounding period seven would be from $640,000 to $1,280,000. Period eight would be $1,280,000 to $2,560,000. And then finally period nine is 2,560,000. That goes all the way to $5,120,000. So you can see in period seven, even if this person wanted to start taking some money out, say $50,000 or $60,000 a year, he's still gonna grow and compound over that period of time. So his money's still gonna increase in value while he's still taking out some income? The bottom line is, what do you think of this advice? Now that you understand the importance of compounding and not missing out on one compounding cycle? Is it okay to be really aggressive while you're young and lose money. He should be protecting those compounds periods not being frivolous with him. For those of you who are older, maybe you're already in your 50s. And maybe you've saved a good chunk of money, maybe even have a half a million dollars. Well, you can go from $500,000 to 2 million in just two compounding cycles. But most people won't do that. Why is that? Because these darn markets, okay. If you're in the market, what typically happens is people just ride the downturns they hold on. They lose that valuable time of compounding, because they're spending their time just getting back to where they were. In other words in 2008 after that market drop, it took many investors 10 years just to get back where they were at the beginning of 2008. You had a nightmare if you retired in 2007 and you kept your money in your 401k. Many of those 401K's were cut in half, we affectionately call them the 201K's a year later. And sad to say, who knows, some of those might have turned out to be the new Walmart greeters. The next comment that I'll talk about was pretty typical advice. It went something like this, just by the low fee index from someone like Vanguard. And I get where they're coming from. And honestly, if you're probably more likely to beat mutual fund picks by a paid financial advisor. Than if you just buy the index with low costs between the fees and trying to manage the market. Index funds typically outperform managed mutual funds, depending on the timeframe selected. This is the technique that wall street advisors use, is they kind of cherry pick the years that they want to show you how great they're managed mutual fund has done. But the truth is, if you're patting yourself on the back for how well you've done in the last five to seven years. You're probably going to be in for a rude awakening at some point. Look, we're living in one of the strongest market cycles in history. And I think that's great. I mean, I love strong economies, but it is overvalued. And we are due for some sort of a correction recession something. I just don't know when it could still be out another year two or three or four. Who knows? Anyway, my point is, everyone right now is an amazing stock trader, their financial experts or money managers because really just about anything you get involved with is making some money and it has for several years straight. You know, if you've used a financial advisors and paid them fees during this time. It's almost been a huge waste of money because you really didn't have to have an advisor to buy an index to pick a fund. And you would have done just as well. So now is that gonna change? Gosh, I don't know. But those who are walking with their chests out, you know, they're gonna probably be humbled at some point. And then sadly, they're gonna miss out on 1 or 2 compounding periods. They're gonna be agonizing over their losses and then just sitting there waiting for things to come back. The bottom line is if you don't learn how to become a good investor, understand fundamentals, study companies that you love and maybe intimately want to know, understand where the prices should be at what's a good value, when to buy all that good stuff. You're probably gonna get trapped sooner or later in a downturn. And you're gonna, you know, potentially panic like most investors and even financial advisors do. If you are interested in stocks, this is what I would tell this guy. Learn to be a great investor, and I consider being a great investor more or less the Warren Buffet style. Don't rely on some advisor who usually doesn't have the time, nor the capacity to really help you. Even if they wanted to. You can get pretty good at this. And it's, I say it's simple, but it's not easy and the reason why it's very simple concepts, but it's not easy to necessarily implement. Okay, I went a little over time here. Sorry about that. I try to keep these videos a little bit shorter. So I'm gonna continue this conversation on this Facebook post on my next video. In the meantime, if you have any questions, shoot them to questions at wise money tools.com, I'll answer them just as quick as I can. Also, feel free to put a comment below and don't forget to subscribe. And until next week, I hope you have a great one. Take care.