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Hi everyone, and welcome to another wise money tools video. Hope you're having a great week. So I want to ask you some did you ever see the movie "The Big Short?" So "The Big Short", very interesting movie a guy named Michael burry. He essentially shorted the mortgage market back in 2007-2008. So, I got to kind of paint this picture first you got to get a better understanding why shorting is to understand kind of what happened recently in the news. So just a quick explanation of what shorting is, in every transaction to make a full transaction. There's gonna be a buy and sell, right? I buy Apple stock, and someday I sell it closes out a full transaction. When people buy stock, most of the time, the shares sit inside of a brokerage account.

Now back in the old days, actually, even before my time, when people bought stock. They actually sent the stock certificates to you, then you had to protect them, put them in some sort of a safe or somewhere. You know, because they were just like money. Then when you sold the stock, he basically had to pack up the certificates, sign them, send them back to the brokerage company, he was a big pain, lots of hassle. So today are our so called certificates sit inside your brokerage account in what's called a book entry form. So when you open a brokerage account these days, one of the things you agreed to is to hypothesize Kate your shares of stock. Now hypothesis is a fancy word for you're gonna lend your shares to others.

So when someone shorts of stock, what they're doing is basically selling shares they don't own with the idea that in the future, they're gonna buy the shares and replace them. Since you have to have shares of stock to sell, essentially, you borrow the shares from someone else and then sell them. Then when you buy them in the future, they put them back into the person's account that they were borrow from. Now, what you might not know is that if you have a brokerage account. You most likely agreed to loan your shares to someone else who wants to short or sell shares they don't own at the moment. And in a nutshell, and as I mentioned, a full transaction is a buy in a cell. However, you can do a full transaction by doing the opposite you can sell first and then buy.

Okay, so shorting is simply selling stock you don't own by borrowing it from someone else, then replacing it once you buy the stock in the future. So first off, why would anyone want to sell a stock short? Well, the reason is they believe the stocks gonna go down there. There's trouble in the company and they think it's on its way down. Suppose a stock is selling at $100 a share, you're really pessimistic and you think that stock is gonna fall. So you short sell the stock at 100. So now you have $100 in your account essentially. Now the stock drops to 70. What you do is you then buy the stock at 70 replace those shares, and you've made a $30 profit. You sold at 100, bought at 70 made the spread. Now what Michael burry did is he did this on a massive basis, but what he did was short sell the mortgage market.

Now it was way out of control going into 2008 we had subprime mortgages, we had banks doing stuff that they had never done in the past this thing was getting way way out of control. And then what banks did is they started creating actually and brokerage companies to they started creating these derivatives off the mortgages. Well, derivatives are a whole nother conversation and even a whole course can be done just on those. But in a nutshell, banks would package hundreds, maybe even thousands of mortgages together and then sell them as one bond, if you will call the CDO is called a collateralized debt obligation. And basically, it would trade. Now what Michael realized that this just really couldn't last.

They were packaging mortgages, selling them as a CDO. Then they would package mortgages have mortgages, and that went on several levels deep, mortgages of mortgages of mortgages. And he just figured there's no way that this could last and so he wanted to short the market, thinking there was gonna be a bust at some point. Well, he was wrong for several years. He thought it was gonna happen sooner than it did but a long story and a very fascinating story as well, I might add, he ended up being right. And the mortgage bust of 2000, 2007, 2008 occurred. He personally made over 100 million dollars himself. And he made $700 million for his investors, all because the mortgage market basically failed. Okay, sorry for long story, but it's important to understand what's going on.

So that you know, this next article that has come on. And what spurred This video is that this same guy, Michael burry, has said that a similar bubble and a potential bust is happening in index funds right now. Now, one of the reasons why this caught my attention is because I've always been a proponent of saying. Look, if all you're gonna do is buy mutual funds and you're not gonna take the time to learn how to invest, probably the best thing you can do is just buying to the index. Most actively managed mutual funds. Don't beat the index. Anyway, but what he's saying and put a scare into a lot of those who have index funds is that they may be left holding an empty bag at some point. As this potential default in the future happens actually won't be a default, it'll be more of a market crash.

So in order to get a sense of what that means you got to understand how an index fund works. So let's take the S&P 500. The S&P 500 is made up of 500 different companies, but it is an over weighted index. Meaning if I put $100 into the index, my hundred dollars is gonna get spread out over those 500 companies. But the larger more the bigger companies like Apple, Google, Facebook and so far, are gonna get a bigger percentage of that hundred dollars. And the smaller companies many of which you might not have even heard of get pennies of those dollars. Okay. So his hypothesis, if you will, is saying that the index is getting trillions of dollars thrown into it. And because the index has to mimic the exact 500 stocks of the S&P 500 for instance. It has to buy those stocks, whether it wants to or not, there's no valuations. There's no looking at profitability, revenue, P/E ratios, any of the fundamentals that would normally be looked at if you were to buy a stock or a company on your own.

So these bigger companies, the apples and so forth, are getting extremely overrated with dollars just flooding in without regard to their current pricing. And his theory is because all this money's coming in and again, trillions of dollars are coming in buying these index Is that it's without regard, buying companies that may or may not be able to sustain their current price points. And his thinking is, this isn't gonna stop, people are still going to do it. And it's just gonna build and build and build. And it's gonna create this massive bubble. And the way he describes it, he says, It's like we're cramming more people into a movie theater, but we still only have the same two exits. And if anybody ever wants to exit this thing, it's gonna be an especially if a crowd wants to exit, it's gonna be a stampede rush, and people are going to get trampled on.

So I kind of see what he's saying. If people just keep in advert or without any regard to what's going on in the market, keep buying these indexes. And because the index has to mimic the portfolio, it's gonna constantly be buying more and more of these Specially larger cap companies that again may not be able to sustain their price points and as soon as the market as a whole or a group of investors or just the the news says, Wow, there's no way Apple is worth x, and it's multiple is trading at, you know, 2, 3, 4 hundred times earnings. This is gonna set in some sort of a panic. And again, using that movie theater analogy, people are going to run for the doors. And when they do, the indexes could drop off quite dramatically.

Now, is this gonna happen? I don't know. When is it gonna happen? I don't know. We could be years away from something like this happening. But it is worth at least understanding that what we really have to do here is understand how to invest. Why we invest have some evaluation methods so that we're buying into things that make sense. Waiting for opportunities to buy, when these great companies go on sell the way they S&P handled Now, the way that these large companies are inside the S&P. The way the index funds have to continue to buy these, we may not be able to really get good valuations off some of these big companies. And as a result, then it could be years, decades before we can buy into some of these companies that have good value.

So this wasn't necessarily, you know, meant to panic you. I don't think this is gonna happen anytime soon. But I wanted to keep you aware of this because again, I've been more of a proponent of index funds versus actively managed money. And if this does continue to happen, I can see how this could be a problem down the road. So again, the moral of the story, become a great investor understand how to invest why you invest, understand some valuations, and wait for opportunities when you can get wonderful companies on sale. And this really goes for any kind of investing out there. Make sure that you understand the whys and the reasoning of why you're getting into a particular investment. Hope that made sense that might be you know, a little confusing and there's a lot of to unpack there, short selling and all that is not an easy thing to understand and certainly want to be a very knowledgeable investor before you jump into that side of the market.

In the meantime now, if you have any questions, shoot him a question to wise money tools.com. If you ever want to have a strategy session, click on the time trade the link below. Set up a time we can discuss your particular situation, and some of the pitfalls that you might be running into if these markets start to turn. Other than that, I hope you have a great weekend. I'll talk to you later. Oh, don't forget to subscribe, and I will see you soon. Take care.

Well! Hi everyone, and welcome to another wise money tools video. Glad you could join me today. You know, it's funny how just a little market turbulence really wakes people up, and it even gets politicians fired up as well. Over the past few days we've seen some pretty significant drops in the market yesterday, October 2, we saw about a 500 point drop in the Dow. So what I wanted to do real quick is just put a little perspective on this whole market thing. First off, if you've already been jittery and wondering if getting out of the market is a good time or maybe you think it's reached its all time highs which by the way, it has Maybe capping off those gains is a good idea.

Then my first question is, why are you still in? Right? If and when you get concerned, maybe you even don't sleep at night, you're wondering if there's a safer and more predictable way to build your wealth. And these things are, you know, constantly in your mind, well, then that kind of is a sign, maybe you're losing that, that risk tolerance to stay in. So inevitably, you're probably right, particularly if all you're doing is speculating on mutual funds, and hoping that you pick the right one. So if this kind of describes you and what you're feeling, then you probably be should be sitting on the sidelines.

And by the way, don't feel like you're alone either. Arguably the greatest investor of all time, Warren Buffett is pretty much sitting on the sideline. He has over $110 billion. He doesn't really want to be Neither. And one thing that he does all the time, is what I call flip the script, or Charlie Munger, he calls it, invert the story. And what that means is to take the opposite viewpoint, try to make an argument for the other side, so to speak. Then whichever holds enough water for you, is probably the situation that you should be in. If one side dramatically wins the argument in your mind than the other, then I would take the side that's winning, so to speak.

Now, I hate to say that emotion should not play a part in the decision. It really shouldn't. There should just be some factors and some things that are going on in the market, the evaluations, some calculations and so forth. That's really what should be determining your decision. Maybe it's time, maybe it's retirement, maybe it's, you know, you need to start accessing your funds. Those things are very critical to assess, try to keep the emotion out of it, although it's really hard. The truth is, if it's turbulence, the unknown, the fear of not having your money there when you retire, if that's an overwhelming an ongoing concern. Well, you've got to pay attention to those feelings to no one wants to lie awake at night, perspiring with fear over the future of your money.

So for some, that perspective of the market and the way it's tumbled over 1000 points. It may seem awful, I mean, 1000 points in just a few days. It got to be horrible right. Now because of this, you hear all kinds of doom and gloomers come out of the woodwork, and what I call the financial peddlers, using just the past few days as gimmicky ways to sell and manipulate the situation. You're gonna hear if you haven't already, politicians. Now claiming, you know this is it, economy's on its way down time for a recession should have never had those tax cuts or whatever they want to peddle from their own particular grandstand. But let's kind of see what this really means.

Now, when calculated, and as a percentage, yesterday's 500 point drop equates to .04%. That's less than one half of 1%. Now, suddenly, it doesn't sound so awful when you put it in that perspective. Back in 1987, kind of my first market drop when the market dropped 500 points in one day. Now, because of where the Dow was that equated to a 22% loss. And one day, the Dow was at 2200. At the end of that fateful day, it was down to 1700. Now that is horrible, right? Now remember it kind of like was yesterday. Again, I was like my first real day of seeing what the market today could do to go against you a 500 point drop a one day. Well, now that the Dow is at 26,000, 27,000. 500 point drop really is nothing to have an equivalent drop of the doubt that would equate to what happened in 1987.

The Dow would need a one day loss of 5700 points. Okay. So with that said, I'm certainly not suggesting that the market is perfectly priced. And we're not gonna see a drop like that. Actually, for a few years now, I've been saying that this market needs a significant correction. I said that most people won't see the gains that they've gotten these past few years in reality. Because they're simply gonna hold on and be in the market when it corrects and wipes out several years growth. So for those who are looking at their current statements, as if this is going to be their money. I think they're going to be really disappointed when this market finally corrects. Now, could this be the time? I've got no idea. But recessions and corrections have always come, always will. It's a part of a really healthy market.

Since the vast majority of those in the market are what I call speculators. They're hoping they pick the right mutual fund. And since they have no idea what the numbers look like, on the investments that they hold themselves, then that's what gets us into trouble. Now, how do I know they don't know these numbers? Well, let me just ask you a couple questions about your stocks or your stock funds. Number one, do you know if the companies you own are profitable, and have a sustainable market? Do you know who their competition is? And is the competition gaining? or losing ground against them? Is the stock price of those companies overvalued based on their revenue, their cash flow, price earnings and so forth?

What's their competitive advantage? Do you know what that is? Do they have solid management is the management and running a company with honesty and integrity? And as far as management and the company goes, are they doing stock buybacks right now? And if so, what kind of price are they paying? And if they are doing stock buybacks, is this good for you? Or is this good for management? I mean, I could ask any one of these questions to 99% of those who have mutual funds or a 401k. And they really don't have a clue. That tells me that they're speculating or crossing their fingers that the mutual fund manager will look out for them. A little bit of a wake up call for you right now. Okay. Mutual funds will never get out of the market. Okay, they have to stay invested.

Even if they see a train wreck coming, they have to stay on the train and have that they just don't die. Mutual fund managers are not looking at the market and asking the question, should we even be in? They look at the market and they say, what else should we buy? You have very little if any downside protection in a mutual fund, unless you yourself, pull the trigger and get out completely. This is why I say that the majority will simply ride the roller coaster down and hope that they come out okay, in the end. Those that have had gained through the last 2 or 3 or 4 years may never see those in reality because they could be wiped out.

Okay, so to wrap this up, I don't know if we're on the edge of a cliff looking down and someone's behind us ready to push us over the cliff. Or if this market could drop like a rock or free could possibly still climb for another year to. What I do know is that if you're worried jittery, and don't really know what's going on inside of your portfolio. If you're not keeping up, you probably should look at some alternatives that are that give you greater control. The financial peddlers are always gonna be out there. The politicians are always gonna be out there. Gloom Doom, as you probably know, and all the bad news sales so much easier. If this turns around, you're likely never going to hear a peep. If it continues to drop. It's gonna be on the news every 15 minutes.

I want you to be comfortable where you're at, that you have a plan or a process. That you understand your investments and you understand why you're in them that you're as safe as your risk tolerance requires so that you sleep at night. There are better ways than just buying mutual funds and crossing your fingers. And better ways that put you in charge and more in control of your money. So if you ever want to talk about some of those ideas, and how to be a better investor, feel free to click on the time trade link below. Schedule a few minutes with me and we'll have a conversation. Until then, make sure you subscribe. Never miss a video. And if you have any questions, shoot the questions at wise money tools.com. I'll answer them just as quick as I can.

In the meantime, don't get too panicked about what's going on in this market. Be panicked, that you may not be in the position that you're comfortable and that's what's most critical. When we come to these times where, you know, our heart starts to pound wondering, what am I going to do if I lose X number of dollars, that's what you should be concerned about. Well, that's it. Until next time, hope you have a great week. I will talk to you next week. Take care.

Well! Hi everyone, welcome to another wide money tools video. And I promise we're gonna finish up the six items today. Just to have a little recall here, in our previous three videos we talked about, basically the six items that are pushed by traditional financial advisors, get out of debt, defer all the taxes you can, if you have more than 10 years to invest in by mutual funds. Number four was don't buy individual stocks. And in this video, we're gonna finish up the last two items. And so number five is by term insurance, because that's all you'll ever need. And then the sixth one is kind of an absence of talking about an item. And that is the absence of talking about real estate being an viable option as well. Okay, so when it comes to buying life insurance. Now stick with me on this because I know maybe some of your thing, and I want to talk about this might be, you know, a little more depressing and all that stuff.

But this is critical. And I think you're gonna want to know some of this stuff is gonna face you sooner or later. If it hasn't already. When it comes to buying life insurance, you're gonna find really more opinions, then you probably want. So there's a couple of things. The first thing is Do you want to die with life insurance? Okay, now we don't typically think we like to talk about dying, right? But there's really no way out. Okay, we're not getting out of this thing alive. The fallacy and most financial plans is that they say that if you save in a 401k, you've got plenty of money, that you're gonna be able to drop your life insurance. Well. If that's so true, then why do so many people in their 60s who are doing some estate planning, who have some wealth, one of the first things they do is buy a boatload of life insurance.

You see, it's an amazing asset. It's the only asset that you can pass tax free, probate free, it bypasses wills and trusts and again probate and goes directly to your beneficiaries. It's really kind of the most unique asset there is. To suggest you'll need life insurance until you're about 60 or 65. Well, that's just almost crazy. Because so many people are relying on the fact that the markets have performed well, they got all this dough, their networks so high, and so they won't need life insurance. And as you can see from our last couple videos, that's just not typically, you know, something that happens. And the wealthy understands that more that the more money you have, the more you probably want life insurance as an asset category. Okay, so here's the big problem with term. The big problem is it gets more expensive as you age.

That means when you're in your 60s and 70s, and Heaven forbid your 80s term insurance, when it renews, you're probably going to find premiums way too expensive. And it would literally just drain your finances, if you kept it. That's why it is typically dropped long before people die. In fact, term insurance statistically pays out about 1 to 2% of all their policies, because people drop them before they die. This very typical with her term insurance, they buy it while they're young. While it's cheap, and statistically they're not gonna die. Then they drop the insurance when the costs rise, and they age and it gets really expensive. Yet this stuff is can't say that yet, statistically, they are gonna die. To me It's like having homeowners insurance, and paying premiums for years and years and years.

And then just about the time of hurricanes about to destroy your house, you drop your homeowners insurance. And you're left with nothing but a bunch of canceled checks for the premiums you paid to thousands, even maybe 10s of thousands of dollars that's wasted. Well, this is the same thing that happens with term insurance. If you think about a hurricane being your eventual death, people pay thousands, again, even 10s of thousand dollars in term premiums and drop it before the hurricane or death comes, the families left again with a bunch of canceled premium checks. Look, you're going to exit this earth at some point, why not have insurance and force when you die? I mean, you've paid premise for so many years anyway, it's gonna happen. We could go on to several other discussions with this topic.

But let me end with this. If you use a permanent whole life policy. It becomes an asset, it becomes a storage facility, if you will for your capital, it becomes a place where you can access cash for major expenses, purchases, and better yet for investment opportunities. It's a tax free location. If you do this, right. It can be a tax free supplement to your retirement income. And it doesn't affect your Social Security. And finally, it is the best asset to die with. You won't be throwing away premium because it's coming back to your family at some point. And again, it's what the wealthy have done for generations, you would think after listening to traditional financial advisors pushing term insurance, that the Rockefellers as a example, would have plenty of money and would not need insurance. Right? But just the opposite.

They've been using insurance now as a means to pass on wealth for generations. Hmm. Why don't we follow what the wealthy do instead of what the financial planner tells us to do? They're totally missing the boat. And I know, I was one of them. I was so frustrated with what was taught and sold that I had to find a better way. I didn't realize how easy and simple it was to just copy with the wealthy do. And the wealthy do not buy term insurance. All right, lots more on that topic. But we'll have to leave it at that for now. The last item on our list wasn't so much an item of what to do. It was the absence of what to do. It was so blatantly obvious from this radio advisor that he missed out on a potential investment opportunity. What he did is he left out real estate.

Now real estate comes in many forms. It could be buying a rental property, it could be getting commercial properties, it could be lending money for real estate projects in development, maybe even building real estate or building buildings yourself. And finally, looking for undervalued properties and selling them at market value is a good way to make money. The last one's a little bit more difficult to do right now, especially when we're in a boom cycle. But it's been something that people have done for years. The point is, there are many ways to get money working in real estate. The problem is most advisors can't get fees. If you go buy a rental or lend to a builder as an example, they have to get you into their mutual funds their 401k case.

So real estate's not so often discussed, if and when they do talk about it. It's always using an alternative investment. These are typically partnerships or direct investments, they can be in real estate. But just be extremely careful. The costs and fees on some of these things is just crazy. And it can cut into your profit dramatically. I remember back in the day, seeing partnerships that were offered to us to go sell to our clients, some of the fees just to get in or 25% or higher. So if you put in $10,000, they took $20500, right off the top for fees, that's $20500, that doesn't get invested. Then they had their annual fees and maintenance fees on top of that, in the end, you'd be lucky just to get your money back, let alone have a profit. I saw this time and time and time again.

Real Estate can be a good option, but just make sure it's a fair arrangement. I don't like it when advisors talk about real estate as a viable option, and then put you into expensive partnerships as well and makes no sense. Okay, so that's our list. And appreciate you hanging out with me over these few videos. We talked about getting out of debt. We talked about deferring taxes. We talked about investing, if you have more than 10 years, we talked about not buying individual stocks, we talked about buying term insurance because that's all you're ever gonna need. And then we talked about the absence of real estate as an option. And again, getting out of debt. That is the only one that I really agree with 100%, you should be working on that. A think about it. So much of what they teach makes no sense if you understand economic history, investing and following the wealthy.

It can be frustrating because as I said earlier, if it was working, more people would be retiring with plenty of money. And sadly, financial advisors with all these designations like the CFP does not combat this problem. In fact, it can kind of make it worse. They taken traditional financial planning and even dug in deeper. I know I was studying for my CFP, I finally bailed out because I was so frustrated. It was the same old stuff on steroids. I was hoping for more insight, more understanding of investing, more knowledge of how the wealthy got there. I mean, should this be what we learned from our financial advisors. I was much better off reading books from great investors like Warren Buffett, Monash Bry, Charlie Munger, Guy Spears, just to name a few.

Those books have given me more knowledge about money and investing, then the CFP would ever hope to. But it's so dyed in the wool committed to financial planning that it isn't working. In fact, you even see ads, you should work with a CFP. Well, that's like working with a traditional advisor who's even more dyed in the wool and dug in. Anyway, learn, be educated, empower yourself. That's what's gonna make you a great investor. So that's about it. If you'd ever like to talk further, click on the time trade link below. And we'll set up a time to talk Don't forget to subscribe. If you have any questions shoot me the questions at wise money tools.com just as quick as I can. Until next week. Hope you have a great week. Take care.

Well! Hi everyone, welcome to another wise money tools video. Glad you could join me. So we're pushing into part three if you will, on the six major items that most traditional financial planners talk about and push as their financial planning practice. And we're on to number four. Number four is something that I pretty much disagree with wholeheartedly from traditional financial planners. And that is don't buy individual stocks. Now, let me say I can see where that comes from. Because most people who buy individual stocks sadly, get their tip from going to breakfast with a friend go into their barber. And this is where they're getting their advice, that does not work. But this is a silly argument that over the years has been pushed down investors throats by financial advisors, who basically just aren't willing to give up control and their fees, I can only go by the greatest investor, arguably ever.

And that's Warren Buffett and his sidekick Charlie Munger, they essentially say something like this, if you understood how easy this was, financial advisors would not exist. Now, there are some advisors who work with estates and businesses. And there's certainly gonna be a market need for that. And there's a lot of reasons that financial advisors can do some good. But from the investment side, it's not too likely in our modern technological age, that you need someone holding your hand to buy mutual funds. In fact, you're better off for the most part, just buying the index, a low cost index on your own since managed money underperforms the end index more often than not. But the real way to build your wealth is understanding individual stocks.

When you look at an individual stocks, you want to look at it as if you're buying the company as a whole. So let me make it kind of easy. There's really a four steps process that you need to know to be a good investor. And by the way, there are now ways that you can simply follow gurus as well. You want to invest exactly how Warren Buffett does, you can actually track his portfolio. And there are brokerage firms that you can literally just buy into that style or those companies that Warren Buffett owns through Berkshire halfway or you can just buy Berkshire halfway. Anyway, there's several you can use, and just copycat and simply follow what they're doing. So if you like what a particular guru has been doing, and the kind of things that he talks about and teaches, you can just copycat.

Anyway, so back to the four simple steps. Each step carries with it further explanation, but I'm gonna have to save that for further videos and get into those details. And I'm gonna have it in my investment course, because it does take a little bit more to develop. But we kind of want to look at this from a 30,000 foot view. So first off, you want to make sure it's a company, you know, you maybe even love this company. You certainly buy from them in some fashion, you understand what they do, and you can figure out how they make money. Start with companies again, that you buy from and that you trust, that's a really good start. Next determine what their competitive advantages if you know what their competition is, who their competition is, why they have that competition, why not? What makes them stand out from their competitors?

Can you see them in business and even growing for the next 10 years. So the next thing you want to do is look at what's called the intrinsic value of the company. This is often referred to as the book value, it's really pretty simple. If the company totally went out of business, liquidated all their assets, what does one share of stock? What is one share stock worth? So if they liquidated, one share stock was worth $10. That is the intrinsic value or the book value of the company. Next thing we want to do is we want to know some numbers. And again, you don't have to be a CPA, you don't have to go too crazy. But there is a short list of numbers that you want to know. You certainly want to know the the revenue of the company how much they're selling each year, and the revenue they bring in.

And then the cash flow of the company, the free cash flow of the company, what kind of debt they have. Their ultimately what their profit is, and then what their growth has been over the last number of years, say 10 years and see what how that's transitioned over the last decade. And actually, these numbers are really easy to find in pretty much Google, what's the cash flow of XYZ? What's the cash flow of Google, what's a cash flow, Costco or whatever. Once you have all that you can pretty easily determine what a fair price to pay for the company is. In other words, you want to pay a price that you feel like you're gonna do well with over the next 10 years. But here's the real key and kind of the last part, you want to build in a margin of safety. That means that when you come up with that fair price, you want to pay 50% less than what you think the company's worth.

So if it appears, you could pay $10 a share for this company. And it'd be a really good buy for you, then you want to be patient and wait until you can buy that for $5. Now, this takes some major patients, Warren Buffett sitting on 100 and $510 billion in cash, because he's very patient. He wants to make sure he buys with a margin of safety. And again, Who should we be a copycat? You know, Who should we be following the greatest investors out there. And what a margin of safety does as well is it protects us just in case our numbers aren't perfect, and then we're off a little bit. Alright, so to end all this, what you're gonna find is that it's really not that hard to find what the market value of a company is. Then we have to be patient wait for a pullback, a recession, a crash, we're gonna call it and then like Buffett, we can buy wonderful companies at a bargain price.

Oftentimes, an event can trigger this as well. Probably one of the best examples I can give us a few years ago, you might recall this Chipotle Mexican Grill, wonderful restaurant very well run. They had a little D coli scare with some of their chicken. And man, their stock just dropped off the planet. Well, that was become events that maybe become a really good buying opportunity. Because you feel like. Okay. Chipotle's gonna clean this up, they're gonna do what they can to make this so that never happens again. Very well managed, that gives you opportunities to buy. So look for events along the way, then you can apply this just about to any other investment that you're interested in. You don't have to be just in stocks, you can do real estate, buy a business, maybe you want even do some lending, there's a lot of things that you can do using the same similar principles.

Okay, well, we got a little far off little too long again. So I'm gonna have to hit the final two items in our next video. So what's left, the last two items are by term insurance, because that's all you're ever gonna need, again, promoted by many traditional financial advisors. And then the last one isn't necessarily an item but it's the absence of an item. It's the absence of talking about real estate being a viable option as well. So if you have any questions, shooting the questions at wise money, tools.com answer just as quick as I can. Don't forget to subscribe. If you want to have a quick little strategy session, click on the time trade link below. Otherwise, stay tuned and we will talk to you next week. Until then, take care.

Well, Hi everyone, and welcome to another wise money tools video. So in our last video, we were talking about this radio guy who was talking about the six main points about money and investing. And we got through a couple of them. The first one we talked about was getting out of debt, that seemed very obvious, I think every financial advisor would agree that getting out of debt is a good idea. The next one we talked about was deferring all the taxes, you can maximize your 401k if you have one. And at least do an IRA and maybe a Roth. So what we're gonna do is now pick up on the third one, which was, if you have more than 10 years to invest, then by mutual funds. Then we're going to quickly hit the fourth one, but don't buy individual stocks.

The fifth one by term insurance, because that's all you'll ever need. And then the sixth one was more of an absence of talking about a very important asset and that is real estate. And of course, since he's a securities broker. He's not gonna say much about real estate being an option. Because they don't typically get involved in that. So again, we talked about getting out of debt, and the strain that puts on marriages and families, it really is one of the best financial moves you can do, you can first do and that is eliminate your debt. Our banking system, by the way, is typically what does that perfectly. And so you might want to check that out, because it can really get you out of debt a lot quicker and give you capital at the end.

And then like I said, we talked about deferring taxes, and whether or not that was really a help or not, there's certainly some trade offs there. One being not knowing for certain that you're gonna be in a lower tax bracket when you retire. And that's a big one. Alright, so here we go on to number three. If you've got more than 10 years to invest, they recommend that you buy mutual funds. Alright, so this was kind of kills me. All right, it's almost to say, if you have 10 years or more, you're gonna be fine, you're gonna make money. Well, let's look at a few things at face value first. Here's a look at our real return after inflation and taxes. And what I'm gonna do is I'm gonna use an 8% rate of return. Which is basically been the average of the S&P 500 for the last 10 years, it's actually 8.18%. And these have some you know, we've obviously been in some really good years, I think you'd agree.

Remember some of my other videos where we point out that average does not equal actual returns would be really critical to watch now. Just so you can get a flavor that just because something averages 8% doesn't mean it's actually going to achieve that 8% return, there's a big difference. Sometimes it's big enough to drive a semi truck through, so don't believe averages. Anyway, again that's another video. Alright, so what I want you to do is look at this calculator that I've built here. And here's what we have, we've got $10,000 invested every year for the next 10 years. And we're gonna put in that it's done 8% every year. We're gonna throw in 2%. for inflation. We're gonna put it at a 25% tax bracket. And you can see that our future value would be $166,000. Now after tax, that drops down to $124,000.

And finally, after taxes and inflation, we dropped down to $109,000. So let's not kid ourselves into thinking that buying mutual funds for the next 10 years is gonna get you all that far. Now this particular financial advisor was so insistent that if you have 10 years, it's the only way to go. So now here we come to my real message, what I really want to get across to you right now. You could go 10 years, 15 years, 20 or even 30 years. But if you were unlucky enough to retire within a few years of 2001 or 2008, your retirement probably went right out the window. You could have had stellar years up to 2001. And then BAM 50% of your money's gone. When you hit 2001. Now think about that. Let's say you had a million bucks in your 401k, then almost overnight, it's worth half that. And this is the money you planned on retiring with, then this turned around and happened again. Honestly, in 2008 mutual fund values were down 50%, they just obliterated your retirement.

So it's really borderline absurd for these guys to say, if you have 10 years you can invest? Well, that's great unless your 9th or 10th, or even your 8th year is a 2001 or 2008. And then what did they do? Sorry, that didn't quite work out for you. But for most people, if they go 10 years, they turn out fine. Well, here we are 2019, we've had a good run these last 8, 9, 10 years, maybe almost too good. So at some point, we're gonna have a recession, a fallback, a correction, or whatever you want to call it, it's gonna happen. They always have they always will, and one is on the horizon, I just don't know how far out that's gonna be. So if you're comfortable relying on the fact that your mutual funds at these all time highs are gonna do even better over the next 10 years. Well, I might want to remind you that in 1929, it took nearly 30 years for $1,000 to be worth $1,000 again.

I think about that in 1929. If you had $1,000 obviously it dropped off the face of the planet. But then it took 30 years to be worth $1,000 again. Now I'm not trying to be gloom and doom here. I don't think there's a depression coming. I like investments. I even like the market. But I like the market when it's on sale and not at these highs. I don't like mutual funds. And I certainly don't like these guys talking about averages and throwing those things out. And I certainly don't want you to think that just because you've got 10 years that nothing could go wrong. How do these guys know that in 2029, it's not gonna be another 2001 or 2008 or heaven forbid in 1929. You know, back in the 70s, there was a basically a day a decade long of basically nothing. And if we go back a little further, in October of 1965, the Dow Jones Industrial Average was 960.

It took until December of 1980 for the Dow Jones Industrial Average to be 963. So 17 years of basically stagnant do nothing type growth, get these financial guys, and especially these radio guys want you to invest in a market at an all time high. As long as you have 10 years. Well, I'm glad they have a crystal ball. I love it if you were more empowered, more educated, a better investor and didn't rely on advisors who really have no sense of reality, and don't look at these things. And quite frankly, don't manage money, they simply send it off to a mutual fund and then charge you fees. You Meanwhile, have to cross your fingers. Hope we don't have another way during your retirement years, or your retirement could be toast. Bottom line, I don't care if you have 10 years or 50 years, knowing what to invest in understanding the investment, understanding why you're investing, understanding the financials of the investment.

You don't have to be a CPA, but you do need to understand a few numbers. And at what price should you be paying for that investment. This is the only way you're gonna have any semblance of control over your financial future. Now, lately it's not uncommon to hear from those who are trying to be patient, wondering if they should be invested in this market. They keep on asking, should I buy in man, I hate to miss out. What if the market keeps going for another couple years? Honestly, that could happen. I mean, we've got a pretty good economy right now. However, it doesn't negate the reality that from an earnings perspective, and from a price perspective. It's much higher than the cash flow, or the profits or the revenue, whatever you want to call it warrants. I can tell you that many of those who've experienced gains over the past number of years. They're probably eventually going to lose most of it, depending on how significant the next recession or pullbacks gonna be.

In other words, if we have a 30% market drop, that could wipe out three to five years of return money they thought that was gonna be there's. If we see another way, that could mean 8 to 10 years of growth wiped out virtually overnight. It may be better to be a buyer when the price is below the value. Then you can pretty much stay invested for decades, if you get in at the right time. As you you can see, financial advisors for the most part, have no interest in this. They need to sell you these mutual funds and start collecting their fees right now. Obviously, they want you to come out, okay, and they hope you come out. Okay. But they're not really thinking through the whole process. They rarely ever asked this question. Is it a good time to buy, they just basically say if you have 10 years, it's a good time to buy. They use catchy phrases like, Don't time to market or it's not about time. It's timing.

They make you all feel, you know, warm and fuzzy and all cozy. But they're meaningless terms are meaningless phrases. They're not slogans that the wealthy and great Investors live by any means. From the advisors perspective, it's well if you have 10 years or more than you should invest. And to me, that's just borderline insane. Okay, so that was a little bit of a soapbox. I'll get off that from for now. Anyway, I wish I could grab some of these advisors by the shoulders and shake some sense into them. So be careful of the same old tired advice traditional advisors have been giving for years. I always say if traditional financial planning worked. Then more people would be retiring with more money, but they aren't. In fact, so many retirees are struggling to make sure that they have at least enough money to last their life. They don't want to run out of money before they run out of life.

Okay, so I went a little long here. So I'm gonna push our next item the number four don't buy individual stocks to the next video. In the meantime, if you have any questions, make sure you shoot those questions. To questions at wise money tools.com. I'll answer them just as quick as I can. Don't forget to subscribe. If you ever want to have a quick strategy session, click on the time trade link below and we can get together and have a little conversation about your particular situation. So that's it for this video. I will talk to you next week. Take care.

Hi everyone, and welcome to another wise money tools video. Glad you could join me today. Well, on August 28th on Wednesday, I was driving back from the hospital, where I got to go check out my newest grandson had makes an even dozen. And in a few weeks, we're gonna get number 13. So it's been pretty exciting. So we're excited to welcome Jeremiah to the family. Anyway, on the way home, I was listening to traditional financial planner on the radio, pretty much pushing the same old ways that I don't think work. And you might ask, How do I know they don't work? Well, it's pretty simple. And I've been doing for almost 35 years now. And the fact is, if traditional financial planning worked, more people would be retiring in comfort, peace of mind and have the wealth they need.

But they're not just about every day, you can talk to someone who did the traditional methods, they deferred all the money they could into their 401k thought that would that by buying mutual funds and just investing forever. That they were gonna be in great shape that if they paid cash for stuff, that they had a reasonable mortgage and they worked off paying off their house and be debt free. Well, that by the time they finally got to retirement, they would be in great shape. problem is that's not really happening. They still don't have enough money to give them a predictable, worry free retirement, you know, having all the money and income they need to at least last as long as they do. Well, this guy was going on the same old tired things basically went like this, there's kind of the six little things, and I want to talk about the six.

The first one was get out of debt. Okay, I can agree with that. We could talk about how to do that. And maybe some different ways, there's a lot of different strategies for doing that. Number two was to defer all the taxes you can and maximize your 401k if you have one, or at least an IRA, maybe a Roth. The third one was if you have more than 10 years to invest by mutual funds and don't care where the market is or where it's going to be. Number four was, don't buy individual stocks. And number five was by term insurance, because that's all you're ever gonna need. Number six was. And of course, since he was a securities broker, number six was basically the absence of talking about real estate as an option.

Alright, so now I think it's critical to dive a little deeper and get a better understanding if each one of these items on the list. You see some make sense, some are misunderstood, some aren't applied properly. And some are simply illusions and do not work and should be avoided. I want to keep these videos short enough so that you can digest it quickly and not be too overwhelming. So let's see how far we get. First, get out of debt, well, you don't have to be a brain surgeon to realize debt kills most financial plans. What's really sad is that you probably know that debt and financial problems are the cause of the majority of marital arguments. So you'll be happier if you can eliminate debt in your married life. Until you're out of debt, your investments are also gonna suffer as returns are always offset by the debt.

For instance, if you're carrying debt at 12 and 18%, on credit cards, there aren't very many investments that can offset that cost. Even a debt at 5 or 8% is hard to offset every single year without fail within your investments. Now, what am i mean by that? So let's suppose you have a debt of 10% interest. And you have a choice, you've got some money over here? Should you invest? Or should you pay off the debt? Well, if you don't think you can do better than 10%, every single year with no losses, then you're gonna be better off using that money to pay off your debt. For that investment to pay off, you're gonna have to do better than the 10% that you're paying in interest. In other words you kind of get a 10% return, just getting rid of your debt, then once you get rid of the debt, you want to stay out of debt. The main thing is most people will get a better return on their money by knocking out their debt first, rather than trying to find investments at double digits.

Well, for now, let's not include your home mortgage in this because we're gonna talk about that more later. But let's get rid of all your other debt, pronto. Did you know that nearly 35% of the average American families income goes toward debt 35%, that's 35 cents out of every dollar. So think about how much money that's going to the bank and the finance companies rather than your pocket. However, few advisors want even talk about this to you. And because in order for you to work with them, you've got to invest, they've got to charge their fees. So even though debt might be the best thing you can do, oftentimes advisors don't talk about it. So getting out of debt huge. And in most cases, the best way to begin building your wealth. What I would love to see more people do and I wish we taught this in high school in grade school even. Let's just not even get into debt, let's figure out ways to avoid debt, teach kids to stay out of debt, they're gonna be able to build their wealth so much faster.

Okay, so the second one was to defer all the taxes you can into retirement plans. Now, this is promoted by more than just this guy, it's really pushed by pretty much all the financial entertainers on the radio. It's pushed by CPA is just about anybody you talk to about money is gonna push that you need to put as much as you can and defer as much tax as you can. This one needs some understanding of what's really happening here. Understand that there is no way to get out of the taxes in a retirement plan. Let me say that again, there's no way to get out of the taxes in a retirement plan, someone sometime is gonna pay the taxes. This could be you, your spouse, your kids, your dog I don't care who someone's gonna pay those taxes. When you defer taxes, all you're doing is betting that your tax rat bracket will be lower in the future than it is now. It's as simple as that most people have saved in a retirement account for their own use.

In other words, they save to eventually use this money for themselves during retirement. And again, there's only one way to win in a retirement plan. Just one simple way. If you're in a 30% tax bracket currently. The only way to win is to be in a lower tax bracket, such as 20 or 25%. When you eventually take that money out, pretty simple, right? If you're in an equal or higher tax bracket, when you take the money out, you lose. One other thing to note is that when you defer a tax, all you are doing is investing the IRS is money along with yours. Now let me give you an example. Suppose you save $1,000 a month into a retirement plan. And you're in a 25% tax bracket. That means you're deferring the payment of $250 in taxes. Essentially, what happens inside of that retirement account is there's two sets of books going on.

Okay, you have $750 and the IRS has $250. It's the same account, you get to choose how it's invested. However, this $250 is the IRS is money. It always has been and always will be, the IRS gets all the growth over the years to the only way you get some of that money is to prove later in life that you're in a lower tax bracket. When you take that money out. Now, let's say you invest this $250 each month for the IRS and you get a 10% rate of return because you're just this wonderful manager. And you're gonna do this for the next 25 years. What that means is the IRS is money's gonna grow to $331,000. Now again, that's the IRS is money, you're gonna see it in your account, you're gonna see that your thousand dollars per month actually grew to $1.3 million. However, when you retire, if you retire at a 25% tax bracket, it's a breakeven, the IRS is going to take their $331,000. They're gonna be happy that you manage it really well for them. Now, if you're in a 20% tax bracket, well, then you win.

Because now you only have to give the IRS $260,000, you saved an additional $75,000. Or I should say you got $75,000 more over the years, by only having to pay them out $260,000. The IRS is still pretty happy by the way, you paid them 340% more in taxes. Now, let's add one more issue to the mix here. In a 401k, you're gonna be very limited on what you can actually do with your funds. You're gonna be forced to buy into the mutual funds that were chosen for you. And that might be okay. But oftentimes the fees and costs and even the lower returns make it so that it's not all that attractive. Okay, so what's the answer here? Well, for some, it may be wise to do a three bucket approach, when it comes to your taxes, you may think about this, you may be in the lowest tax bracket you're ever gonna be in. Because I know you hear the same thing I do these politicians want more and more of your money.

So what does that hold for future taxes, if I was looking at 20 or 30 years. I would be thinking man, there's a good chance, it's going to be a higher tax bracket for me than it is right now. If you don't know for certain that you're gonna be in a lower tax bracket. You may want some of your money in what's called an already taxed bucket. And then put it in a location where you can control and access it managing yourself. This is what we use our banking system for it gives you access to capital. Once that money's in there, it should matter. It's never taxed again, if you manage it properly and you'll have access to it to take advantage of opportunities. Now, you may also want to do a Roth IRA for some of that. That means you've got to pay the tax, but then you'll never pay tax on the growth of that over the years. And just because your employer gives you a match doesn't mean that's always a great deal.

Again, costs, fees, performance and your tax bracket, it's gonna have a lot to do with the overall results. Okay, so I went a little long here, I don't want to go this long every time. So we're gonna have to pick this up on the next video, we're gonna pick up those next few items. But I want you to see this list. One more time of the things that we want to talk about in these next couple of videos. I want this to get you thinking, I hope you realize that traditional financial planning and CPA advice may not be the best after all. Again, I say if it was working, why aren't more people retiring wealthy? Well, there's a lot more to this story a lot more we need to understand. We're gonna dive in a little bit deeper. A man I can't tell you how important it is to stay informed. Be educated. Empower yourself to make your own financial decisions.

In the meantime, if you have any questions, shoot them to questions at wise money tools.com. I answer just as quick as I can. Don't forget to subscribe. If you want to have a strategy session with me take a few minutes talk about your situation. Feel free to click on the time trade later. Hello, and until next time. Hope you have a great week. Take care.

Well, Hi everyone, and welcome to another wise money tools video. Glad you could join me this week. You know, I love when new economic news comes out. It's so funny how you they get the viewpoints that are totally opposite from one another. They'll have a couple different guests on their each one talking about their particular point of view. You know, economists and weather forecasters are the only jobs that you can have and be 90% wrong all the time. And you still get to keep your job. It's really interesting. Economists are just as bad as weatherman, there's one economist that I started following way back in the late 80s. He had written a book and on some of his past forecasts, and they had been right.

So obviously, when an economist gets it right a few times, you tend to pay a little attention. And in the book he talked about he sees the future and when we could expect a major downfall in the economy. And what was supposed to happen in the late 90s, early 2000. Well, sad to say, since that book of the 80s, he's pretty much been wrong. Yet, I still see. He's out there selling newsletters, he's written another couple books. And I just don't get how they stay in business and be so wrong so often. Anyway, you know, I remember when I was a teenager, as a long time ago. By the way, my mom worked for a guy who, I don't think it was an economist, but he was some sort of a forecaster. And man, he had a huge following. And this is pre internet, of course, but his book was a about the coming crash that was just gonna rock the world for decades.

The forecasted crash was supposed to happen in the mid to late 80s. And I remember 1987, I was a kind of a maybe within the first couple years as being a financial advisor. And if you know what happened in 1987, we had this thing called Black Monday is still the worst one day loss in the stock market history. So this is happening. I'm sitting there live watching this in my office and thinking, Oh, man, here comes this guy was right. And smart is gonna tank and we've got decades of gloom and doom. Well, unfortunately for him and his followers, the market recovered, literally within a few days. And by the end of the year, it was even positive, it pretty much didn't even look back from that day till 2000. Then, of course, you saw what would have we remember what happened in the late 90s, with the dot-com boom. And then we finally did have a really decent set back in 2000-2001.

Anyway, all of his followers, I mean, these guys were really doom and gloomers. They were prepared, They had bunkers, and food storage, and all this kind of stuff totally missed out on everything. So anyway, going back to this current economist, I don't really want to mention his name, he's kind of popular. But anyway, his forecast was by 2005 things were gonna look so bleak, the baby boomers, were gonna be pulling all their money out of the market. And because that segment, the baby boomers was such a huge part of the population, that the markets are just gonna tank. And we're gonna see Bedlam for the next 20 to 30 years. Well, as you know, 2005 came in when 2010, 2015. And now we're pushing into 2020. And still nothing like that has even remotely come close, and couldn't happen. Of course, I don't know if, if it's totally off the table now. Of course, anything can happen.

But people gave so much credence to these guys like him. And like I said, they can always be wrong and never be right and still be on the top of the news channels when it comes to news. Alright. So it's kind of those stock newsletters that you get, you know, they all start out saying something like. And so predicted that Google would be a winner. And now he has another stock for you that could make you rich, I'm sure you've seen those. I read through a lot of them get a laugh, because they all have that same format. It's either gloom and doom, and you better subscribe to my newsletter. So that can tell you exactly what to do before the economy crashes and you lose everything. Or it's you need to get my newsletter so I can make you millions with my next stock tip, because what I will show you is a secret that no one else knows.

And you know, it's funny about the secrets that you know, the statement about this is a secret. Well, if you know anything about the markets, the only way a stock goes up in value is it becomes a very high demand stock. The more people want it, the higher the price goes. So if it's a little known secret, and no one knows about it, then there can't be much demand and this stock is not gonna go up. Right? It's all about demand. Of course, they want you to think that you're getting in early before everyone knows about it. Look, we live in a technology age where information is spread to millions and millions of people and literally seconds. There aren't many secrets out there certainly not secrets that come from a newsletter that was printed three months ago. Okay, so what's the news of the day sorry, all the backstory there. We've seen two sides of the spectrum regarding the economy and a potential recession.

One side says that we've got this inverted yield curve. And we talked about that a few weeks ago. And they point out the recession is on the way, nothing we can do about it. The other side says that the fundamentals of the economy, like spending and housing, they're doing really well. And we're not gonna see a recession for at least two years. Not sure where they come up with two years, since they can't predict next week. But that's the two stories, both opposing views. One makes you a bit uneasy, and maybe scared. Got a run for the hills, the other encourages you to keep spending and investing. Now, I believe the 2008 crash was preventable. If you recall, the crash was spurred on by the mortgage debacle, over $2 trillion dollars was essentially rode off by banks and lenders, which in turn, you know, beg the government for intervention and what they quoted or what they called quantitative easing. That's how that came into play. I love the names of the government programs, quantitative easing and other words bailout, right.

The feds print money, then loans that fabricated money to the government than the government makes the banks whole or at least flush based on banking rules. And we the people get to pay $2 trillion back to the feds, all right? Don't you love it. However, none of this really had to happen. The real reason for the debacle or one of them, I should say, was the rule that's called mark to market. What that means is a bank has to mark the value of its assets or its loans to the current market price. So if a bank loan $250,000 on a home for example, and the homeowner got a little behind in payments and his home maybe after the devaluation was worth $150,000, let's say, well, the bank and they're wonderful rules, mark the asset worth less than its original loan amount. And by bank rules had to foreclose and sell the property.

This is where the term a short sale comes in. Because there's a shortfall, which means they're selling the home for less than the loan amount. The hundred thousand dollars that was essentially evaporated in this example, was covered by the government by the feds printing money. The reason I say the entire crash was unnecessary, is had banks eased up on their lending practices and wrote out the tough times with the homeowner, they'd have been made whole. And then some years later, had they not played the mark to market came and just said, Hey, we're in this with you, we know things are gonna recover at some point. And as long as you can keep up with your mortgage payments, we're gonna make this thing work.

However, what happened is that banks became well, banks wrote off this $2 trillion. But then they were made whole immediately, that let them become extremely profitable almost overnight. And they've made boatloads of money because they never had to pay these loans back. Banks had little skin in this game. And basically use this the short sales to get rid of the assets that weren't marked to market at the price that they are that the lending the value, and then were made whole. Now, on the other hand, those with money and knew we wouldn't be down forever, we're able to pick up properties for pennies on these short sales. And have been just rewarded handsomely. We've probably made more millionaires by the banks and the government faulting on this thing than an almost any other event in our history. All thanks to us, the taxpayers, the millionaires thrived.

So had they simply eased up on the mark to market rules we'd be in much less debt is a country. And many thousands of families that lost their homes and their businesses would still be living in those homes today. So we don't have to always go into a recession and feel like it's gonna turn us all upside down. If the industry, the banks, the markets were just smart and work with sound principles. And know that these recessions and corrections are just part of the natural phase of the market. I think we could prevent a lot of debacle from happening. There's more, I like to talk about, you know, the the depression and how it was actually longer than it needed to be. Some of the things that the government has done during these correction periods have actually turned it out or turned out to be worse.

Anyway. So when you're thinking about what's gonna happen over the next couple years. And you see two opposing views, it's hard Believe me, it's hard to know which one to you know to believe, just know that probably both of them are wrong. Both of them have been wrong for many many other predictions. And probably not panic to just be smart. I would say this is a time to be a saver, save save save a mass capital, because we are gonna see a recession at some point. And those that have capital are gonna be able to capitalize on that market.

Well if you have any questions, send it to questions at wise money tools.com make sure you subscribe. If you'd like to have a strategy session, click on the time trade link below. Have a quick conversation. See what's going on in your life and how we can improve your situation. In the meantime, again subscribe, stay tuned. Hopefully these things are informative love doing them for you. Until next week. Take care.

Hi everybody, welcome to another wise money tools video. Glad to have you with me today. So I had a really interesting conversation the other day was, and it may fit some of your situations. You know, I know a couple of you still have some teenagers at home, maybe you're in your, I don't know, early 40s, late 40s, who knows. But this couple very similar situation had a couple teenagers at home. He's got a really good job pays well has a 401k. And he's funding it to the max. So that's pretty common for a lot of people. They have a fairly good size home, and along with it a really good size mortgages. And this is kind of where our conversation started. They're worried about retirement, and having that mortgage payment hanging over their heads for years and years into retirement.

So we were just kind of casually asked me, you know, should I take the money out of my 401k and pay off my house? And I got to thinking about that, you know, there's so many variables in answering this question that I thought might be a good conversation for us to have. Because some of you might have a very similar, you know, Outlook or trying to figure some things out like that. So let's look at each of these assets, if you will individually. Let's first take a look at the 401k. Now, there's a couple things to note about the 401k. As you know, it's most likely invested in the stock market. And we've had a really good 10 years in the stock market. In fact, I was thinking the other day I was thinking Man if somebody was in their, you know, mid 20s, got their first job started funding their 401k. They really have no idea what it's like to have some kind of a recession or a bear market.

In fact about the worst year we had was right at the end of last year in 2018. The market tumbled and basically lost all the earnings throughout the year kind of turned out to be a breakeven year but still nothing all that devastating. So for a good decade, we've seen this market pretty much be on a decent projector. Okay, so one of the question was, you know, how long is that gonna last I mean is are we gonna be in this situation where the market is just gonna keep on going keep on going for years and years to come? Well, who knows, we may have another year to we may be coming to the end, I don't know. But recessions you know, and bear markets are really a normal part of the economy, we have to expect them at some point.

And they're actually kind of good, we're gonna see a typical recession hit at some point. It's probably gonna take a decent chunk of returns and earnings from a lot of people's 401ks. It's possible when a recession hits that somewhere between two and five years, sometimes even more of all the growth that you had over those years can be wiped out. When that market finally takes a breather and falls back into we'll call it normal territory. And what I mean by normal territory, I kind of look at that Shiller P/E ratio as a good overview, kind of a 30,000 foot overview of where we're at. And currently that Shiller P/E is still over 29, which means investors right now are paying $29 for every dollar of earnings. So as an example, let's just pick a company, let's say Walmart, as our example, let's say they make $1 on a share stock well invested right now are paying $29 for that $1.

Now to again, for perspective the median P/E the median price earnings ratio is closer to 14 or 16 times earnings. So in other words, dollar earned investors pay somewhere between 14 and 16 times as a median. Now let's contrast that to Amazon. Amazon's price earnings ratio is 93 times earnings. Okay, and apples is right around 8. So you can see there's a lot of variance in the different companies out there. But as a whole, the market is looking at a P/E ratio about 29. And that again, is much higher than it's probably gonna be at some point. So when this market does take a fall, it's gonna be who knows, it could be a year or two might even be just a short time. But what often happens is a market over corrects and drives these P/E ratio is even lower than they should be. That's when buying opportunities are plentiful. And that's when we like to become investors.

Okay, so now we look at this 401k. It's probably done very well over the last, you know, 10 years, like we said. When the market finally resets, he's probably gonna take a who knows 15, 20, 30, 50% hit on his account value? How much will that be hard to say. But it wouldn't be far fetched to think that it's gonna have at least a 20 to 30% hit. So let's just say he's got half a million dollars in his 401k. Over these years. He might expect to lose $100,000 or more. Now in 2008, a $500,000 401k dropped to 250,000, or even less, we affectionately called the 401k a 201k because they were literally cut in half for so many people. Okay, so that's the 401k dilemma and what we're looking at, and you know, what's our best move there. Now let's look at the house, he says that they are kind of house poor, in that the mortgage takes up a significant part of their income.

Now, let's not beat up on them too much. But as they probably realize, now they would have been much better off getting into a home that wasn't so burdensome as far as the mortgage payments. Now on the flip side, they live in an area where real estate's been doing well and their home value is growing the promise someday, when they retire, unless they have other investment income, they're probably gonna need to access the equity in their home, just to get through retirement. This might require them to either sell the home to get the equity out, or maybe even do a reverse mortgage to supplement their income. Who knows. Now they may have looked out, and they've got more house and they should have bought but the equity appreciation is building capital and again cash that someday they may be able to use. Now on the downside, if we go back to 2008, this type of home little higher end home is are the types of homes that fell dramatically some lost 50% of their value.

So that could potentially wipe out a lot of their equity that they've had over the years. Now have to understand one concept about equity. If I were to ask you what rate of return is equity get? So many of you would likely answer that it grows about the rate of home values in your area. And that would make sense, right? But if you live in an area, let's just say where home prices are rising by 3% a year, you might say that equity grows at 3% a year. However, it's really wrong. Okay. Equity gets a 0% rate of return every year, every week, every day forever. You say hi, well, how can that'd be my house goes up? Well, let me prove it to you this way. Let's suppose we have two families, they both buy a home for $300,000 on the same day, same neighborhood, same values, okay. One pays cash.

So he has no mortgage, he put the entire purchase price $300,000 into his home. He technically has $300,000 in equity right? Now the other one finances his home 100%. And I know you really can't do that these days. But it's this is just kind of a show my point. So this family technically has no equity as they put no money into the home. Now, in this case, on a $300,000 home this fame, this family's gonna have about a 1500 dollar a month house payment. And then as include taxes insurance, but both families have to pay those costs no matter what. So let's just say that in five years, both homes grow at a average rate of 3% per year. And so now there were $350,000. So both families have increased their net worth, if you will by $50,000. More than obviously they paid for the home. But here's what I want you to see, the equity in their homes actually grew at 0%.

You see the family that paid cash for their home, has a home where $350,000 they grew by $50,000. The family who had no equity in their home also grew by $50,000. You see the amount of equity in their home, or the amount of money they put into it had no bearing on the growth of the home's value, the market price of the home is what drove the equity. The point is own your home free and clear or have a mortgage is really not going to have a bearing on the price or the value of your home. Now, you could say that this family that put $300,000 cash into their home had a rate of return over those five years of 16% total, or about 3% a year. The exact Return of the homes market appreciation, the other families paid 1500 dollars per month for five years. That's a total of $90,000 that they've put into payments.

Now it's difficult to come up with the exact return because the $90,000 was put in over 60 months, not just from day one at 1500 dollars per month. However, the return on investment would be close to 55% or about 11% a year. So the leverage of using OPM, that's other people's money. In other words, having a mortgage actually enhance the return for this family. Now, here's one thing that I'm adamant about. When it comes to paying off your mortgage, I will never tell someone not to pay off their home, no matter how much better it could be by carrying a mortgage. I'm simply pointing out that there are two sides to the story and you have to do what's best for you and your family. Now, going back to our family in this situation, what they did is they might be regretting having such a stifling mortgage payment. What they may find at the other end, though, is that they've built much more equity and a better return on investment by having a mortgage.

So there's always trade offs. I'd prefer to have a low to moderate mortgage, be able to save more money and use your capital to increase your net worth by investing in other opportunities. Which is why we love our banking system, it's a place you can save tax free gives you access to that capital for their investments along the way, when assets or investments go on sale. Okay, so now we have to separate the two assets, we get the 401k, we've got the home, the question comes to me again from this family. Should we take the money out of the 401k to pay off the home and free up the monthly income that they then could save? I think the only way we'll know the perfect answer to this question is to have a crystal ball and see the future. See if the market is going to tank and his 401k is going to lose $100,000 then of course, it'd be really good idea to take that money out now at the peak right?

Even after paying taxes, you'd be better off to have his home paid for with money that he pulled out of this 401k. On the flip side, if he pays off his home, and dumps all that money into his home and then his home value drops. He may never be able to sell it and recover his investment. It's also possible that he's been living in the home long enough that even if it dropped by 20% in market price. His mortgage payoff would be low enough that he could recover what he's put in. For instance, maybe bought his home for $500,000 homes now worth 800. He owes $100,000 on a mortgage, he pulls it out of his 401k and pays it off. So he pays off his home. And then let's say his home dropped to $600,000. Well, he can still recover that hundred thousand dollars that he put in to pay off his mortgage.

Ultimately, he has to determine which scenario poses the most risk for them. If he pays off his mortgage, have a mortgage payment to save each month. That is if he will, sadly, many people soak up that extra money now that they don't have a house payment and put it into their lifestyle. They end up spending more and buying more stuff, which would make the situation even worse. Now, if the market keeps going up, and the home values keep increasing, he's probably better off doing what he's doing. Now, remember, equity gets a 0% return every single year. If the market tanks, they may wish they had pulled money out at the peak and paid off their house. And now they have a mortgage payment that they were making each month freed up again so that they could invest it and hopefully buy things at lower prices.

He and his wife may have this deep down desire to pay off their home no matter what the calculation say. And again, that's a matter of principle and a lifetime goal. There's really nothing wrong with that many people to that even if it's better financially, to have a mortgage. Again, I'll never tell somebody not to do that. The alternative, like I said, is to have a banking system where you can build up your capital thing, you've got options, you have the option to pay off your house, you have the option to be the bank, you have the option to sit on the sidelines when markets are high, then get involved and buy when they go on sell. You have safety liquidity tax advantages, which can add up to more peace of mind and the investing principles that work. Ok. So now see what was posed to me.

By the way, this was at a wedding reception, and we had about 10 minutes to talk, which is why I don't know all the details and specifics. But I wanted to throw this out to you and get your take on it. What would you do? What are your values when it comes to your home and retirement savings? It's a great discussion to have because thousands of families are probably facing a similar circumstance, maybe even you. I think we could come up with a good plan with more if we had more specifics. But the best plan of all is to buy a home with a moderate mortgage, save, save, save, build capital and become an educated investor. Then wait for opportunities to come along. And when you can buy $10 bills for $5. But you have to have a process to build your capital, which again, is why the banking system can work for so many people.

Okay, so that's it. I'm anxious to hear your comments and your question. If you have direct questions, send them to questions at wise money tools.com. I'll try to answer them just as quick as I can. If you want to just get into the conversation, feel free to leave a comment as well and give an idea of what you would do. If you would like a strategy session where we could talk about your specific situation. You can sign up at the time trade link below. Always subscribe and we love to hear from you. That's it till next time. Thanks for joining me. Take care.

Well, Hi everyone, and welcome to another wise money tools video or podcast depending on how you contact with us. So in this video, I want to talk about something that may not be so easy to talk about. You know, one of the hardest things when it comes to money and finances is kind of talking about debt. Right. Now all that, before you click away, I want you to hear me out, this isn't gonna make you feel more stress or guilt. But I want to offer you a potential solution. Okay. So money and finances is one of the leading causes for arguments in a marriage. And sadly, it's one of the leading causes of divorce to as part of our that argument, it's always about spending in debt. You know, debt can really Weigh Down a marriage.

This is a topic, you'd better figure out pretty quickly. If for no other reason, just have one less thing to argue about with your spouse. That can cause stress. Simple as that in life is hard enough. When you add to it the financial stress and debt, it just gives you a potential power cake. Now debts such an easy thing to get into and such a hard thing to get out of. But banks and credit card companies, they love it, when you shackle your income to paying them for as long as they can keep you coming back. You got to learn how to break those ties, and at the very least, you become the bank. So here's how you may think about it. You know, what if you could get out of debt, on average in 9 years or less, including your home without changing your lifestyle or budget.

Okay, now hang on there for a second. See getting out of debt, it's kind of like dieting or losing weight. There's plenty of fad diets out there, all of which I'm sure work for some people. But the only diet that really works long term is the one you can incorporate in your lifestyle and enjoy it. I remember the water diet where you drink gallons of waters every day risk of drowning just to shed some weight. The problem is you just can't live like that. Well long term Anyway, after 15 or 20 days and your eyeballs are up to here with water. It's just not sustainable. Then there are fasting diets, you know where you fast, like 18 hours every day. Again, you may shed some weight, but it's the thought that you have to live this way the rest of your life and starve every single day.

It's just unpleasant and you end up giving up. There's thousands of diets just like that. It's very similar to getting out of debt. There are a bunch of theories and ways you can get out of debt. But the ones that require you to change everything about your lifestyle. And the debt programs that are gonna make you suffer if you will just don't work long term. Now Dave Ramsey has a great way to get out of debt. For some it works. The problem is Dave's is kind of like an army drill sergeant. He's bent on making your life miserable and break you any way he can. Doesn't make it pleasant. And it seems like he's almost sadistic trying to make you miserable just to get out of debt. I call it the rice and beans diet. You live on rice and beans never go out for entertainment, no vacations, no life, and put every penny half towards your debt. And sometime in the future, you're going to finally be out of debt.

Now this may work not saying it doesn't. But for so many, it's just not sustainable. It's so miserable, that you begin to wonder why even go to work at all, all your income goes to the banks and credit cards and you're eating rice and beans for the 30th, 90th, 200th day. There's no enjoyment in life, but things happy as he watches you suffer every day. For those who can do it great. We had a debt, however, for the vast majority are probably gonna fail. There'll be so miserable and frustrated that it won't take long to fall back into the bad spending habits again. Just to get a decent meal might drive you off the plan.

So what you need is to have a debt elimination program that can let you basically keep your lifestyle with some minor adjustments. But it's livable. Like dieting, if you have a program that lets you enjoy life, enjoy food, maybe add a little exercise, curbs some of the most harmful foods and incorporate some healthier foods. You're probably gonna feel better, you're going to look better. And it's a sustainable and enjoyable lifestyle. That's the only way a diet works long term. Because it's not a diet, there's not a time frame or a way cull, it simply becomes your way of life. Getting out of debt doesn't have to be all that misery and pain either. It's about small and simple lifestyle change is that can last. Now it's a really easy approach. It's kind of a step by step approach. And it goes something like this.

First, you got to formulate your game plan, a plan that you can live with that doesn't stop your heart. Think of your income, as if it's filling a bucket, and the bucket is full of money. That's like having holes at the bottom of the bucket. And it's all seeping out. Every time you put money in, it pours out of your hands and goes to the bank and credit card companies. The next step is to see if we can find where you might be losing some of your income, oftentimes, unnecessarily or unknowingly. Then what we want to do is redirect money that may not be doing as well for you, as maybe getting the debt paid off would. As an example, Sometimes a retirement plan and other savings plans are giving you a lower return on your money than paying your debt off would be.

Once we have figured that out. Then we set up a business banking system where eventually you will control the capital and spending without the need for banks. But what you need is a step by step plan on how to save what debt to pay off first, when to pay off the next one, and so forth. Once you get the second one, the third one, obviously, you're at some point going to be completely out of debt. And it's not as hard as you think. And it doesn't have to be drudgery either. You don't have to go on some crazy fad diet to lose weight, and you don't have the rice and beans to get out of debt. Look, I know some of you may seem like a steep mountain to climb, I get it. But if you have a desire to get rid of it, it can be done. And again, without changing your lifestyle dramatically.

There's some peace of mind even some power that comes when you control your money instead of it controlling you. You don't have to go on a starvation program and load up on rice and beans for the next five years either. In fact, you don't have to dramatically change your lifestyle at all. There's a much greater chance your debt elimination program is gonna work and be successful if it becomes part of your lifestyle. So you have to think about getting out of debt, and not necessarily all the sacrifice that goes with it. Let's see if we can't make it really easy for you. If you'd like to have a strategy session and see how this might work for you, just click on the time trade link below. Grab a time that works for you. And we'll have a quick little discussion. And as always, if you have any questions, shoot them at questions at wise money tools.com. I'll answer them just as quick as I can. If you have any comments or thoughts, put them down below and I'll try to respond to those as well.

So I hope this has been informative. I'm excited for those of you who are really committed to getting out of debt, but doing it without drastically changing your lifestyle. And again, I asked the question, if you could see a way to get out of debt in 9 years or less, without dramatically changing your lifestyle with that be of interest to you. Would that help you in your financial situation? That's it. Well, good to have you. I'll see you next week. And until then, take care.

Hi everyone, and welcome to another wise money tools video. Glad you could join me today. Maybe you're on the podcast driving, glad to have you as well. So we're gonna talk about trade wars. I mean, this has been a big deal, it's dropped this stock market. Today is the fifth of August and we've had a 1700 point drop in the last a week or so. So there's a lot of people scared wondering what these trade wars with China gonna do. Basically what happened was, Trump said that if you guys don't start playing by the rules, we're gonna increase our trade tariffs on you by 10%. come September first, on our agriculture was like $300 billion worth of goods.

And so rather than China backing down, they played that. They played hardball. And they said, Okay, well, then we're gonna quit buying so much goods. And then they really played the, quote unquote, trump card, and they devalued their currency. Now from a world global, kind of working together perspective, they weren't supposed to do that. In fact, the Fed should be all over them for doing that. So should all the other countries, because when they devalue their currency, what happens is when Well, first off, if you're in China, and now you want to go buy American goods, or really goods from any anywhere in the world, your currencies just been devalued.

So now it costs you more to buy goods from other countries. How that can be good if you're in China, because it's going to persuade you, if you will, to buy more Chinese goods. What it does to Americans, is it with that devalued currency? Now we literally can go in and buy more goods from China cost us less money. The question is, will are, will we do that, and that's where this whole trade Ward is trade war is gonna take us is who's going to who's going to flinch first, who's going to back down first. Now, I'm not trying to say trade wars are good or bad or indifferent.

But I kind of get the idea we've been kind of kicked around pushed around in our country and the trade imbalances with many countries for decades. And it is kind of nice to see that we're finally standing up for ourselves and saying, Hey, you know what, this just isn't fair. It's not fair to our manufacturers. It's not those fair to those who like to import export good. So let's get more on an equal playing field. Not to mention, China does a really good job of stealing our intellectual property, and taking advantage of patents and so forth over in their country that are theoretically internationally patented. So there's some reasoning behind trying to get this all back on good footing.

However, in the meantime, it can sure cause some turmoil. We've talked about this before, the stock market loves predictability, reliability. And anytime there's any kind of a shake up. Yeah, the jitters go through. And you can see what happens. I mean, just even today, part of that 1700 point decline today was over 700, just in and of itself. So the markets do not like it when they can't predict what the future is going to look like. And we can't right now, we do know that agriculture is gonna get hurt, to some extent, because China is going to back off buying some of our agricultural products.

And again, with the devalued currency that they've will, as they devalued their currency, it's gonna affect our import export, as well. So it's interesting, I don't know how it's all going to turn out. But one question that was asked to me from a really good friend, is this the time to buy a house or wait for houses, they that this person was told that housing was gonna drop dramatically because of the trade war? I don't see that correlation, because most of the materials that we use to build houses are American, they're here. We don't import a lot of stuff, especially from China, when it comes to building houses is really not going to affect land prices much.

So I don't see that as a big issue. But they were really concerned, hey, if I buy a house, or should I wait for housing to take a massive correction. That's probably not something that we have to worry about to this point. But we do have to worry about technology, computers, those kinds of things, because that could definitely be affected by these trade wars. So just a little update, not sure where this is gonna go. Not going to not sure who's going to flinch. First. I do hope that sooner or later, cooler heads prevail, and we get back on a fair trade and a balanced system throughout the country. That can be good for everybody both in China, America, anywhere else that we import and export goods.

Alright, that's about it. You have any questions, shoot them to questions at wise money tools.com. Be happy to answer them as quick as I can. If you have any comments or thoughts, have some ideas on how this might turn out. Feel free to express those as well below. And until next week. Talk to you soon. Take care.