This video, "A Beginner's Guide to Investing in 2025" from The Money Guy Show, explains the basics of investing for everyone, regardless of age or income. It covers who should invest, what to invest in (like index funds), where to invest (tax-free, tax-deferred, and after-tax accounts), when to invest (always, consistently), and how much to invest (start with something, then aim for a high savings rate). The hosts emphasize the power of compound growth and the importance of long-term, consistent investing over trying to time the market.
Key Takeaways
1
Everyone should invest to make their money work for them, as it's the most common path to wealth.
2
The myth that you're too young to invest is false; starting early allows you to take advantage of compounding growth, making every dollar you invest more valuable at retirement.
3
You are never too old to start investing and buying your future time, as even those in their 40s and 50s can still benefit greatly from compound interest.
4
You don't need a lot of money to start investing; even a small amount is better than nothing, and your savings rate is more important than the amount you start with.
5
Building wealth is simple, not complicated, and you don't need a finance degree; resources exist to help you learn and avoid common mistakes.
6
When deciding what to invest in, consider stocks (owning companies), bonds (loaning money), and especially mutual funds and ETFs, which allow for diversification with small amounts of money.
7
Index funds are highly recommended due to their low cost, tax efficiency, and ability to "be the market" rather than trying to beat it, offering significant returns over time.
8
For diversified, set-it-and-forget-it investing, target retirement index funds are excellent options that automatically adjust your asset allocation as you age.
9
Investment accounts are categorized into tax-free (like Roth accounts and HSAs), tax-deferred (like traditional 401ks and IRAs), and after-tax (regular brokerage accounts), with tax-free being highly favored.
10
When to invest: always be buying and avoid trying to time the market based on political events or market fluctuations, as consistent investing outperforms attempts to predict market movements.
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0:00
Beginners guide to investing. If you
0:04
want to know the who, the what, the
0:06
where, the how, we got you
0:08
[Music]
0:11
covered. Brian, I am so excited to talk
0:15
about this because we love investing.
0:18
Investing is the path that most
0:21
millionaires take to get to wealth. And
0:24
it is this wonderful, beautiful, amazing
0:27
thing that you can do where you can
0:29
actually have your dollars work harder
0:32
than you do. But it seems on the surface
0:36
there's sometimes there's a lot of stuff
0:37
you have to know about it. It can be
0:39
confusing. There are acronyms and
0:41
there's different types of options and
0:43
there's different ways to do it. And
0:45
everybody, and I mean everybody, has an
0:48
opinion on the best way to do it. So,
0:50
I'm glad that we can walk through today
0:53
what you need to know when it comes to
0:54
investing. Well, I remember when I got
0:56
my first job and I I knew I wanted my
0:59
money to work for me. I knew I didn't
1:00
want to be in this thing all by myself
1:02
or just my labor and where that was it.
1:05
I eventually wanted somebody to step up
1:07
so that I worked because I wanted to,
1:10
not out of the obligation. I wanted my
1:12
money to work just as hard as I did so I
1:14
didn't have to use my back, my hands, my
1:16
head, and my brain. Yep. So, this is
1:19
going to be the how you do it side of
1:21
the thing. So, if you're like I was in
1:23
my 20s, I don't care the typical
1:25
American doesn't start even thinking
1:26
about investing until their 30s. I don't
1:29
care where you are. We're going to come
1:30
to you right now and hopefully load you
1:33
up with how you can start buying small
1:36
quantities of bigger things and create
1:40
tremendous success for yourself. Because
1:42
here's the reality of the world. There's
1:44
a lot of things working against you.
1:45
Whether it's taxes, whether it's
1:47
inflation, we have to flip the script.
1:51
And the way you do that is by owning
1:53
things versus just living in this world
1:56
where everything around you, you're
1:58
renting and not buying it. So, we're
2:00
going to get into that today so you
2:01
understand that as you buy into whether
2:04
it's stocks, mutual funds, or other
2:06
things, you can put that ownership to
2:08
work so you don't have to do so much
2:09
yourself. Yeah. At its core, investing
2:12
is simply taking ownership in something.
2:15
You are sacrificing some of your
2:17
hard-earned dollars to become an owner
2:19
of some other type of asset, whatever
2:22
that asset may be. Today, we are
2:24
specifically going to focus on liquid
2:26
investments, which are available to
2:28
everyone. Everyone out there can invest
2:31
in these types of vehicles. So, we're
2:33
going to walk you through already said
2:33
this, Brian, the who, the what, the
2:35
when, the where, and the how much. so
2:38
that at the end of this episode you can
2:41
get started building your great big
2:42
beautiful tomorrow. So you heard me say
2:44
I figured this out in my early 20s but
2:47
the typical American is in their 30s but
2:50
the big question is who should invest?
2:53
It's the very first one who is the who
2:57
and who should invest. Now this
2:59
shouldn't surprise you. I think
3:01
everybody should have the opportunity
3:03
where their money works just as hard as
3:05
they do. So the answer is everyone
3:08
should be an investor with with with
3:11
just a slight little asterisk. There's a
3:13
slight little aster everyone should be
3:15
an investor so long as you're at least
3:19
past step one of the financial order of
3:21
operations. Remember that's the ninestep
3:23
triedand-true process of what to do with
3:25
your next owner. Step one is having your
3:27
deductibles covered. before you start
3:29
investing, before you start putting your
3:30
money to work, you need to make sure you
3:32
have a little bit of money on the
3:33
sidelines that can keep your financial
3:35
life out of the ditch. So, if you want
3:38
your free copy of the financial order of
3:40
operations, feel free to go out to
3:43
moneyguide.com/resources and download
3:45
yours. So, then once you get past step
3:48
one, then everyone But wait a minute, I
3:52
think we just said everyone, but I can
3:54
already hear the voices out there.
3:56
They're gonna be like, "But guys, I'm
3:59
young. I'm broke. I don't have any
4:02
margin in my life. I want to cover what
4:05
are some of the investing myths that
4:08
keep people from actually starting to
4:09
build their army of dollars." You just
4:11
hit the first one. Uh I I can't invest
4:14
because I'm too young. I just started
4:16
out in my career and I'm only 22, 23
4:20
years old. And yeah, I know about
4:22
investing, but that's for that's for
4:23
people haven't figured out. That's for
4:25
people who are more advanced in their
4:26
career. That's for people later on in
4:28
life. That's just not for me as a young
4:30
20some. I'm too young to invest. Well,
4:33
this is the one I mean, full stop. I
4:36
want you to lean in on this. If you are
4:38
a young person and you're looking, you
4:39
feel like, you know, the world is
4:42
kicking my rear end right now because
4:44
we've we just came out of this
4:45
inflationary period. Things cost so much
4:47
more and you're just mad. You're like, I
4:50
can't believe this world is stacked
4:52
against me. This is the part I need you
4:54
to understand. Yes, some of those things
4:56
are going to be hardships, but realize
4:59
you are a billionaire of time. That's
5:02
right. And when you're young, every
5:05
ounce of your time that you actually put
5:08
into investing is going to exponentially
5:11
benefit you because you're going to be
5:12
able to exploit the eighth wonder of the
5:14
world, which is compounding growth. And
5:16
that's why we have devoted so much of
5:18
our resources and so much of our
5:20
education trying to pay it forward to
5:22
young people to understand every dollar
5:25
for a 20-year-old is worth $88 at
5:29
retirement. Every dollar for a 30y old
5:33
is worth $23. Still incredible, but
5:36
there's a big drop from that 20-year-old
5:38
that's 88. Every dollar for a 40year-old
5:41
is now $7. Every dollar for a 50 year
5:44
old is $3. Do you see that? So every
5:47
time literally the difference between
5:50
somebody in their early 20s trying to
5:52
save and invest versus somebody in their
5:54
40s is a tenfold difference. So if
5:57
you're a young person and you're mad
5:59
that this world is stacked against you,
6:01
turn it upside down and start exploiting
6:04
the resources and the most powerful
6:07
three ingredients of wealth building.
6:09
That's time is on your side to make the
6:12
most of it. And if you're sitting out
6:13
there like, well guys, I'm not 20. I'm
6:14
22. I'm 23. We actually have a tool for
6:17
you. Go to
6:18
moneyguy.com/resources and you can play
6:20
with our wealth multiplier tool where
6:22
you can actually put in your age today
6:25
and it will show you exactly what your
6:26
wealth multiplier is. It'll also show
6:28
you how just a very small sum of money
6:31
can get you from a starting point today
6:33
all the way to a million dollars or all
6:34
the way out to $2 million. So being too
6:38
young is not an appropriate excuse to
6:40
not invest. It should be one of the
6:42
number one reasons why you start
6:45
investing. But Brian, let's talk about
6:47
now what about the other side of the
6:48
Well, I just set a trap because now
6:50
everybody who's out there who's not in
6:52
their 20s and not even in their 30s is
6:54
be like, "See, this is why the system's
6:56
now stacked against me cuz I'm too old."
7:00
But guys, we have some realities for you
7:02
is, and this is one of those things that
7:04
I covered in Millionaire Mission is that
7:06
I don't think that anybody is too old to
7:08
put their money to work. But we did a
7:11
really amazing thing. If you're trying
7:13
to look at this concept of buying your
7:16
future time, do you realize the
7:19
discounts that you have access to if you
7:22
will just put a little bit of your
7:24
hard-earned money a little bit today for
7:26
that great big deal tomorrow? The
7:28
discount rate is still incredibly good
7:32
even beyond your 40s. That's right. It's
7:35
not just a game for young people. We did
7:37
an entire episode walking through this
7:39
and even for someone who's 40 years old.
7:41
If you're trying to buy a future living
7:44
expense, you can get it on sale right
7:46
now at 90%. Even someone who's 45 can
7:50
get that future year on sale at 85%.
7:53
That's how powerful investing in
7:55
compound interest can be for you. So, if
7:58
you want to know more about that, you
8:00
want to understand this concept of no
8:02
matter what age you are, you can still
8:04
buy your time, make sure you go check
8:06
out that episode called Buy Back Your
8:08
Time. how to buy and how to own your
8:11
time. So, you can neither be too young
8:13
to invest nor too old to invest. Well,
8:17
Brian, there's another one that we hear.
8:18
Okay, I'm not It's not that I'm old and
8:20
it's not that I'm young. I'm just too
8:23
broke. I don't have any money. I If I
8:26
can't be investing tens or hundreds of
8:28
thousands of dollars, should I even be
8:30
investing at all? Well, and and look,
8:33
our system is is strong, but it does
8:36
have, if I was picking on us, it seems
8:39
like when you tell people who are in
8:40
their 20s, when they're even their early
8:42
30s, when there's cuz we there's a
8:44
reason we talk about the messy middle
8:45
where you're you're short on both time,
8:47
you're short on money, you feel like
8:49
life is just whooping up on you. And
8:51
then here we are, we come out of of
8:53
nowhere and we say, "Hey, you need to be
8:54
saving and investing 20 to 25% of your
8:56
gross income." People just close the
8:58
book. They shut it off. They they say
9:01
these guys are are ridiculous. So that's
9:04
why look, I'm going to tell you if
9:05
you're just now starting out, don't let
9:07
that turn you off. What I would
9:09
encourage you to do, yes, that is
9:10
aspirational. I just want you to do
9:12
something. That's right. Because
9:14
something is better than nothing. And
9:16
that's why we've even created a
9:17
resources and illustrations we'll show
9:19
if you just start off with 1%. Cuz
9:21
remember, I got motivated to really get
9:24
my life in order when I had a teacher
9:26
tell me that a $100 a month could
9:28
potentially become a million dollars for
9:30
me in retirement. It changed my entire
9:32
outlook towards life. And that's why
9:34
we've also created a resource says if
9:37
you can just save 1% more, look at how
9:40
much this is going to do for your future
9:43
self. So do not sleep on this
9:45
opportunity. So you don't have to have a
9:47
ton of money. You just need something.
9:49
and you can take that something and put
9:51
it to work for you. But maybe now you're
9:52
saying, "Okay, well, I hear all these
9:54
things, guys." But you know, the reason
9:56
that I can't invest, I just don't know
9:58
enough. I'm I'm not I'm not I'm not
10:00
educated enough. I didn't get a finance
10:02
degree. I've never been exposed to
10:04
personal finances. Well, don't you
10:06
worry. That's exactly what we're here
10:09
for. That's exactly what The Money Guy
10:12
Show does. And you may be amazed to find
10:14
out that building wealth is remarkably
10:18
simple. Now, it's not easy because there
10:20
are some behavioral things you have to
10:21
do. But it doesn't have to be
10:23
complicated. It doesn't have to be
10:25
rocket science. And we have an entire
10:28
enterprise here devoted to helping you
10:31
do money better. Well, here's the cool
10:33
thing. You don't It doesn't have to be
10:34
perfect. You just have to have a
10:35
curiosity and an aptitude to want to
10:37
improve yourself. Because I think about
10:39
my my scenario. We both come from humble
10:41
beginnings. I knew nothing about money
10:44
when I was starting out other than this
10:45
this rapid desire to improve myself. I
10:49
had this accounting degree from Georgia.
10:51
But look, I even made a lot of mistakes
10:53
myself. My first investment ever, I
10:55
think about the 20some version of myself
10:58
who went to an insurance salesman,
11:00
bought a Bshare mutual fund, which is
11:03
anybody knows, I think they pretty much
11:05
have outlawed these things. You don't
11:06
see Bshares anywhere anymore because
11:08
they were just structured so horribly.
11:10
So even somebody who just starts out
11:13
making
11:14
mistakes doesn't mean you have to stay
11:17
that way and you can improve and get
11:19
better. And we tried to create a system
11:21
as well as resources so you don't have
11:23
to even fall into the same traps I did.
11:25
And that's why if you could go out to
11:27
moneygu.com/resources, we will
11:29
absolutely load you up because I like
11:32
that we cut through the noise of life
11:34
whereas so many people trying to sell
11:35
you products. There's so many people
11:37
trying to sell you a shortcut and we're
11:39
actually out there ringing the bell
11:40
telling people, "No, look, we're
11:42
actually going to share the path to
11:44
wealth building, the real path. It's
11:46
going to be slow, steady work, but it is
11:49
going to do more than you could ever
11:51
think because this thing's going to
11:52
eventually get to a point where it's
11:53
growing exponentially." All right, so
11:54
we've laid out the case for who should
11:56
invest. It's everybody. And we've gotten
11:58
rid of all of your excuses. So now the
12:00
natural next question you're going to
12:02
ask is, "All right, well, what do I
12:05
invest in?" I mean, how do I do this? If
12:07
I open up Tik Tok or I open up
12:08
Instagram, there's millions of different
12:11
things for me to invest. And we want to
12:13
break it down for you. We want to make
12:14
it very, very simple. When it comes to
12:17
investing, when it comes to investing in
12:19
liquid markets, the majority of what
12:21
you're going to see is going to be
12:22
broken into some distinct categories.
12:24
Number one, you can invest in stocks.
12:27
This is just companies you've heard of.
12:28
These are Apples, Nvidas, Home Depot.
12:32
You can go buy a share in that
12:34
corporation. You go buy one share of
12:36
stock and you immedately become an owner
12:39
of that corporation. Pretty easy, pretty
12:41
plain, pretty simple. The other thing
12:43
you can do is you can go invest in
12:44
bonds. All bonds are is they are loan
12:47
obligations to either a company or a
12:50
government or an entity where you're
12:52
essentially loaning them some of your
12:54
money. They're going to pay you back an
12:55
interest payment on that money and then
12:57
at the end of whatever that term is, you
12:59
get your money back. So it's basically
13:01
you turn into a lone shark. Not exactly,
13:03
but you kind of turn in to the bank
13:05
yourself. That's the way the bond works.
13:06
Well, everybody I think a lot of people
13:08
have heard the vocabulary of stocks and
13:10
bonds, but they say, "Yeah, but okay."
13:12
Somebody tells me because we we we are
13:14
guilty of this is we will show all kind
13:15
of projections and we'll say, "Look, if
13:17
you make between 7 to 10% rate of
13:20
return, you'll do well." They how do you
13:22
do that? I mean, which stock do I go by?
13:25
Which bond do I go buy? Well, that
13:26
brings in we actually think there's even
13:28
a better way was because there's a third
13:30
pot, which is mutual funds and ETFs. And
13:33
here's what I like about mutual funds
13:34
and ETFs is that when you start off, it
13:37
might be like I was in the beginning,
13:38
$100 a month. Well, are you going to go
13:40
buy one individual stock with $100? Is
13:43
that even possible? Or bonds? I mean,
13:45
which bond do you go buy, you know, for
13:48
with $100? That's what I like about
13:50
mutual funds and ETFs. It lets you buy
13:52
into baskets literally while we put this
13:55
visual on there of holdings with your
13:58
small sum of money. So, it really gives
14:00
you diversification, gives you lots of
14:01
power with your money. This is an
14:03
incredible thing. But even with that,
14:05
now that we've shown you these basic
14:06
components, stocks, bonds, mutual funds,
14:10
ETFs, okay, you guys gave me some
14:12
definitions. Good for you. You're almost
14:14
as good as Webster, but what does this
14:16
mean for how do I do this? What's the
14:18
actual investment that I should be
14:20
buying? Yeah. Inside of that mutual fund
14:23
and ETF uh type of investment, there's a
14:26
type of investment that we absolutely
14:28
love. It gets us so excited and it's
14:30
just called an index fund. And all this
14:33
is, this is a specific type of mutual
14:35
fund or a specific type of ETF that
14:38
tracks a market index. Meaning that it's
14:40
trying to model or mimic a certain
14:43
segment of the market. The one that we
14:45
talk about all the time that you hear
14:47
quote all the time is the S&P 500 index.
14:49
All that's doing is it's a mutual fund
14:52
or an ETF that tracks the 500 largest
14:56
companies, largest stocks in this
14:58
country. So rather than you having to go
15:00
out and buy all 500 of them, you can
15:02
just buy one single holding, you get
15:04
exposure to all 500 of those stocks.
15:07
Well, I I feel like I need to express my
15:09
my love affair with index funds. Why do
15:12
I like index funds so much is because
15:14
they really do it is the solution to a
15:16
lot of the problems I had when I first
15:17
started investing is that first of all
15:20
it's low cost. You don't see index funds
15:23
typically with like high commissions
15:26
because somebody's selling them for
15:27
them. You don't see them with high
15:28
internal expenses. Here's the other
15:30
thing. Because they're an index fund
15:31
because it's just once a year or twice a
15:34
year they're adding or removing funds.
15:36
It's not like there's somebody in there
15:37
actively trading trying to beat the
15:39
market. there's not a lot what's called
15:41
turnover. So these things are very tax
15:43
efficient. And then what I like is
15:46
instead of all this noise that
15:48
especially in the beginning because
15:50
we've all watched movies and so forth
15:52
and we're like man or you maybe now it's
15:54
not movies that's an old man thing.
15:56
Social media is telling you crypto or
15:59
all these other shortcuts to your wealth
16:01
building and then here's this thing an
16:04
index fund that says instead of trying
16:05
to beat the market why not just be the
16:09
market. I mean that that is the powerful
16:11
component because we love the value of
16:14
what index are doing cuz now you can
16:17
with one decision get access to this
16:19
whole basket of holdings so that now
16:21
that $100 a month it's actually starting
16:23
to take shape into an actual investment
16:26
that's actually got potential to grow
16:28
with the market and have success and we
16:29
actually have some numbers that show you
16:32
what this can do and become in the
16:34
future. Yeah, I mentioned earlier the
16:36
S&P 500. Well, if you just think about,
16:38
okay, instead of going out there and
16:39
trying to pick which stocks are going to
16:41
be the best performers and how do I do
16:42
that and I just were to go buy the S&P
16:44
500, if you look at the performance of
16:46
the total return, so that's the capital
16:48
appreciation along with the dividends
16:50
that are paid from the S&P starting in
16:53
January of 2000 all the way out through
16:56
the end of 2024. If you were just buying
16:59
that index over that time period, you
17:01
would have experienced a
17:04
538% rate of return. Just buying that
17:07
one index, not having a finance degree,
17:10
not having to pour through financials,
17:12
not have trying to figure out which
17:13
stock to buy. Just being the market
17:16
allowed you to have over a 530% rate of
17:19
return. There's several things before we
17:20
come off this slide, I can't help but
17:22
with a little bit of tangent education
17:24
is that everybody's heard of the Great
17:25
Recession.
17:27
If somebody if you have the ability
17:28
whether you're on YouTube or Spotify and
17:31
you see this chart that we put up here
17:33
do you see how yes you can look at this
17:34
and see 2008 was down but doesn't it
17:38
just look like a historic blip and
17:40
what's funny is as we when in doubt zoom
17:43
out when we look at what happens with
17:45
the pandemic from the pandemic down to
17:47
2022 you see right now it looks like a
17:50
pretty good valley another blip time is
17:52
going to make this once again another
17:54
blip but still some of you And look, I'm
17:57
never going to get mad if somebody is
17:58
just says, you know what, these guys
18:00
said the S&P 500. I don't get
18:02
frustrated. I don't get disappointed
18:03
when I see somebody's just out there
18:05
buying the S&P 500. But you're going to,
18:08
as you get into your journey with wealth
18:09
building, you're going to say, "Yeah,
18:11
but there's a big difference between a
18:13
20-year-old investor. There's a big
18:14
difference between a 40-year-old
18:15
investor, and there's a difference
18:16
between a 60-year-old investor. You have
18:18
different needs from your money." But
18:20
there, so that brings in this component
18:22
of balancing out the risk and reward.
18:24
We're going to probably need some
18:26
diversification. Sure, that sounds
18:29
complicated. So, is there anything that
18:31
cuts through the noise of that? Yes,
18:33
that the S&P 500 is great. How does that
18:36
now integrate into diversification
18:39
because I'm not exactly a spring chicken
18:41
anymore. I'm 45 years old and probably
18:43
retiring in the next 15 years. I
18:46
probably need to mix this thing up a
18:48
little bit. Yeah, the financial world
18:49
has actually made it remarkably easy
18:51
with the introduction of target
18:54
retirement index funds. And these are
18:57
simply baskets of index funds that are
19:00
targeted towards a specific retirement
19:01
date. So if you think that you're going
19:03
to need your money and you're going to
19:05
retire in the year 2050, then you would
19:07
just go by the target retirement index
19:10
2050 fund and you can set it and forget
19:12
it. Right now, while you are young,
19:15
it'll be more aggressive. And when
19:16
you're further away from retirement,
19:18
you'll have more stocks and more
19:19
equities. But then, as you move through
19:22
time, the allocation will automatically
19:24
change for you. You're not having to
19:25
like figure out what to buy, figure out
19:28
what to say, what to trade, it's going
19:30
to naturally do it for you. And the way
19:32
that they do these is all the target
19:33
retirement funds of the index variety
19:36
have what's known as a glide path where
19:38
essentially whether you are someone who
19:41
is 20-year-old, 40-year-old or
19:42
60-year-old, if you buy the appropriate
19:45
target retirement fund, you will end up
19:47
in an asset allocation that most closely
19:50
matches a reasonable risk tolerance for
19:53
where you are in your journey. Yeah.
19:54
What I like about these is I I once
19:56
again I take myself back to my younger
19:58
self where I was kind of I I just I had
20:00
a lot of curiosity and I have a desire
20:02
to make myself better, but I just didn't
20:04
have all the knowledge. As I've shared
20:06
ear, I'm not going to get mad at you if
20:08
you have the S&P 500, but there is going
20:10
to come a point to where you're going to
20:12
say, "Man, I wish I could just figure
20:14
out some resource or tool where it still
20:17
allowed me to take advantage of all the
20:18
benefits of index investing. I like that
20:20
low cost. I like the tax efficiency. But
20:23
if I could just figure out how much I
20:25
could save and invest because I know in
20:27
the beginning I've heard these guys
20:28
mention my savings rate is so much more
20:31
valuable than even what I'm choosing the
20:33
investment. So if there was something
20:34
that would let me answer the question
20:36
how much can I save and when do I need
20:38
it and then they handle the heavy lift
20:40
that could be a blessing in the
20:42
beginning. Now look, once you're in a
20:44
millionaire and you've got, you know,
20:46
you're getting close to being a
20:47
millionaire, without a doubt,
20:49
diversification, there's ways to
20:51
maximize that. But I love index variety
20:54
versions of target retirement funds for
20:56
that person that's new to this journey,
20:59
wants to get the benefits of
21:00
diversification without all the chaos,
21:03
and then get the benefits of index
21:05
investing. There is a solution worth
21:07
sharing. And that's why we kind of lay
21:10
it out there for you if you're looking
21:12
for that all-in-one type option. All
21:14
right, bro. We've talked about who
21:15
should invest. We've talked about what
21:17
you should invest in. Now, let's talk
21:19
about another one. Where do I invest?
21:22
And this one, frankly, can get kind of
21:23
complicated. This seems a lot like an
21:25
alphabet suit. Maybe you've heard of
21:28
HSA, IRA, Roth IRA, 401k, 457, 403b.
21:33
There are tons of acronyms, tons of
21:35
numbers, tons of letters, and it can get
21:38
get very confusing, but we don't think
21:41
that it has to be. And we like to when
21:43
we think about where to invest, we even
21:46
have a structure in terms of how we
21:48
think about those types of decisions.
21:50
First, because we're about to throw a
21:51
lot at you, I just want you to buckle
21:53
in. But I'm going to tell you, take a
21:54
deep breath. There's actually and if you
21:56
get overwhelmed by all these three
21:58
buckets and all the things that are
21:59
going to be on this slide, remember
22:02
there is a better way to do money. So if
22:04
you ever feel overwhelmed by what we're
22:06
sharing, don't worry, it's built into
22:08
the financial order of operations. You
22:10
can always go back to the resource of
22:14
moneygu.com/resources. Look at the
22:15
financial order of operations to figure
22:17
out because it's going to outline, it's
22:18
naturally built into the system these
22:20
three buckets. or if you want to have
22:22
the origin story, don't sleep on
22:24
millionaire mission because this can
22:25
help you out as well. But Bo, let's jump
22:28
into and I think it's kind of when we
22:30
were doing the content meeting on this,
22:32
I was shocked we started with our
22:34
favorite child. Usually you build up and
22:36
you say, "Let's go with the child that's
22:38
good sometimes, but then you know, but
22:41
then a lot of times they give us some
22:43
troubles or they have some d setbacks."
22:46
We started right out of the gate with
22:48
our favorite bucket of the three, and
22:51
that's our tax-free bucket. That's
22:52
right. These accounts, the way that we
22:54
break them into buckets is how they're
22:56
treated from a tax standpoint. So, the
22:58
very first one is taxfree. These are
22:59
things like your Roth 401k. So, if
23:02
you're getting your employer match and
23:04
you're in step two of the financial
23:06
order of operations, but you're making
23:07
Roth contributions, that would be going
23:09
into the tax-free bucket. Your Roth IRA
23:12
is in the taxfree bucket. Your Roth 403b
23:15
is in the tax bucket. Your Roth 457 is
23:18
in the tax bucket. And even your health
23:20
savings account, triple tax advantage.
23:22
All of these accounts are tax-free
23:24
accounts, meaning when you put money in,
23:26
you don't get a tax deduction except for
23:28
the HSA. The money grows tax deferred.
23:31
And then when you go to pull that money
23:32
out, so long as you make a qualified
23:34
withdrawal, those dollars are completely
23:37
taxfree forever. So, these are amazing
23:40
accounts, bucket, structure, strategies,
23:43
great places to begin investing your
23:46
dollars. Yeah, this is why, like I said,
23:48
you're not supposed to name your
23:49
favorite child. This is our favorite
23:50
child is because it is so valuable that
23:54
the government restricts who can
23:55
participate. They restrict how much you
23:57
can participate. So, if you have the
24:00
opportunity to invest in tax-free
24:02
investments, please take advantage of
24:05
this and then maximize the investments
24:07
that you put in this because think about
24:08
the fact if you've got something that's
24:10
already tax advantage by the government
24:13
and then you put the superpower of
24:15
lowcost index type investments in here,
24:18
man. Oh man, some magical stuff for your
24:21
future self is going to be cooking in
24:23
the background. And this gets us really
24:25
excited. Now let's move on to the next
24:28
bucket. So we're still this is tax
24:31
advantage tax deferred. These are
24:33
accounts that they do give you a
24:35
deduction when you make the
24:36
contribution. They do grow in a tax
24:39
deferred meaning that every year as it's
24:40
getting interest as it's getting
24:42
dividends as it's getting capital
24:43
appreciation. The government's not going
24:45
to be taxing on it. But unfortunately at
24:48
some point in the future, usually your
24:50
required minimum distribution age around
24:52
75, the government is going to start
24:54
making you pull this money out to pay
24:57
taxes. So it's good. It's just not
25:00
tax-free good like that that first
25:02
bucket was. So the types of accounts
25:04
that fall in here like traditional 401ks
25:07
or traditional 403bs or traditional 457s
25:10
or traditional IRA, if you're investing
25:13
in one of those types of accounts,
25:14
they're going to be in the tax deferred
25:15
bucket. And then the third bucket, now
25:18
this one is not tax advantaged in the
25:20
same way that the other two are, but
25:22
there still are some tax advantages to
25:24
it. These are just regular old brokerage
25:27
accounts. This is like an individual
25:28
account, a joint account. Maybe you have
25:30
a stock account from work, or you have a
25:32
trust account that you've established.
25:34
These are all after tax accounts that
25:36
you can invest in, and they don't have
25:38
the same age limit restrictions like
25:40
some of the tax-free and tax deferred
25:42
buckets. So, you may be sitting there
25:44
say, "Okay, guys. I you've told me where
25:46
my options are, but how do I decide? How
25:49
do I know which one makes the most sense
25:52
for me to put the money into?" Well, the
25:54
reason we separated them into their
25:56
different tax treatments is the way that
25:58
you decide which one makes sense is
26:00
actually dependent upon your tax
26:02
situation. And that's how we recommend
26:04
you go about deciding between pre-tax or
26:07
Roth. Yeah, this is one. Look, without a
26:09
doubt, most people, we love the Roth
26:12
feature, but there's a group of you,
26:14
we've seen the survey results on who was
26:16
out there in the Financial Mutant
26:17
audience, and a lot of you guys, you
26:19
make a great income. So, you're in
26:21
higher tax brackets. If you're not
26:23
paying attention to what tax bracket
26:24
you're in with your savings and
26:26
investment strategy, you might be making
26:28
a mistake because there might be a
26:30
better opportunity. If you're in your
26:32
peak earning years to where and you
26:34
retire early, maybe you could do Roth
26:36
conversions and some other great
26:38
planning opportunities. So, that's why
26:40
we've tried to put together some
26:43
guidelines. Now, this is not an end all
26:45
because there's going to be a lot of
26:46
other factors that come in, but we at
26:48
least some good guidelines on how do you
26:50
know should you do in your 401k at work
26:52
or your 403b. Should you be pre-tax and
26:55
take the deduction now or should you do
26:56
the tax-free Roth option? So, here's
26:59
what we've laid out. First of all, you
27:01
got to know what is your combined
27:04
marginal tax rate. But, what is a
27:05
marginal tax rate? Marginal tax rate is
27:08
just the dollar the tax rate that you
27:10
pay on your next dollar of income. So
27:12
when you look at your taxable income on
27:14
your tax return and you go to the tax
27:16
table and you see where that falls,
27:18
that's going to be your marginal tax
27:19
bracket. So if you take your federal
27:21
marginal tax bracket and you take your
27:23
state marginal tax bracket and you add
27:25
them together and the sum of those two
27:27
is below 25%, you might be a great
27:31
candidate for Roth contributions. You
27:32
may want to consider that. If you add
27:35
those two marginal tax brackets up and
27:37
you're somewhere between 25 and 30%. It
27:40
gets a little more nuanced between
27:42
should I do pre-tax or should I do Roth
27:43
and you have to think about things like
27:45
your other available account structure
27:47
and your unique timeline and your unique
27:49
goals. But if you are someone who is a
27:52
higher income individual and you look at
27:53
your marginal federal rate and your
27:55
marginal state rate and combined they're
27:57
greater than 30% then there's a really
27:59
good chance you ought to be doing
28:01
pre-tax contributions because every
28:03
dollar that you can save into that IRA
28:06
or into that 401k or into that 403b can
28:09
save you 30 cents in taxes. You can
28:12
think about it like a 30% imputed rate
28:14
of return and that is such an attractive
28:16
benefit. It's really hard to make the
28:19
decision to forego taking advantage of
28:20
that today. Look, there just putting a
28:22
little disclaimer out there. Obviously,
28:24
there's factors that influence this. If
28:26
you're somebody who's under 30 years of
28:28
age, your age and the years, the decades
28:30
of taxfree growth is going to obviously
28:33
push that needle towards Roth. Um, even
28:36
if your tax bracket's going up. But then
28:38
there's other people I think about we've
28:39
had 60s something year olds who have
28:41
come to us said hey Brian I know that
28:43
I'm in a high tax bracket but I'm also
28:45
now thinking about for estate or legacy
28:47
and I want to pay it forward and give
28:49
what's the best type of asset for my
28:52
beneficiaries to inherit and then
28:54
continue to grow taxfree well there
28:56
could be some Roth planning even if
28:58
somebody's in a higher tax bracket but I
29:00
still think that this tax efficiency
29:02
pre-tax versus Roth this is a great
29:04
first step for you figuring out how you
29:07
should navigate this when you're looking
29:09
at it. All right, Brian. So, now let's
29:11
move on to the next one. This one is an
29:13
interesting. It's when do I invest? And
29:16
this is one I think that trips up most
29:19
people. I think most people screw this
29:22
up. And this might be the number one
29:23
question that most often gets answered
29:26
incorrectly in our minds and prevents us
29:29
from ultimately going on our wealth
29:31
building journey. Yeah, us as humans, I
29:33
got to tell you, I love that critical
29:36
thinking element of the human brain that
29:38
allows us to we turn, you know, invented
29:40
the wheel, discovered fire, and now here
29:43
we are, we have artificial intelligence,
29:45
all these other things of the law of
29:47
accelerating returns that makes it so
29:49
exciting to be an investor, to also be
29:51
alive. But man, oh man, can we come up
29:55
with excuses that side rail us from
29:58
doing great things for ourselves. So, a
30:00
lot of times we will say, let me just go
30:02
ahead and tell you something that I see
30:04
right now. We get calls from people
30:06
saying, "Brian, is this really the right
30:08
time to be investing?" Because did you
30:10
see who's in office? And by the way, it
30:12
cuts both ways. I mean, I've had clients
30:15
every election cycle I've been through.
30:16
And that's why I always tell people, do
30:18
not base your financial decisions based
30:21
upon who you which cable channel you're
30:23
watching. If you're Fox News, CNN,
30:26
MSNBC, they are trying to keep your
30:28
eyeballs and your ears. They don't
30:31
necessarily care about your wallet and
30:32
your purse. So, be careful trying to
30:36
make timing decisions or when you should
30:39
invest based upon political thoughts.
30:41
Yeah. So, if you're asking the question,
30:43
well, is there a benefit depending on
30:45
who's in office relative to markets? We
30:47
think that history is a great tutor. So,
30:50
we ought to look back at how have the
30:52
markets performed during different
30:54
segments of our of our political
30:57
environment. And when you look at this
30:59
going all the way back to the 1970s, you
31:01
can see where we had Democratic
31:04
presidents and you can see where we had
31:05
Republican presidents and you can see
31:07
where there were Congress that was
31:08
Democrats and you can see where there's
31:09
Congress and Republicans. And what you
31:11
notice is that it is wildly consistent
31:14
that the markets tend not to care a
31:17
whole lot about who is in office. And
31:20
they tend to be pretty resilient no
31:22
matter which party is in office. So when
31:24
it comes time for you to make your
31:26
investment decision and think about how
31:28
you're going to go about building your
31:29
wealth, should you consider who's in
31:32
office when you make the decision to
31:34
either invest or not invest? We say
31:38
absolutely not. Yeah. Don't let the
31:40
political thoughts that you have that
31:42
might be a blind spot for you. So be
31:43
careful on that because the markets,
31:45
this is going to be a good thing are
31:47
very much nonpartisan. Okay, here's the
31:50
next thing. What if you're worried about
31:52
what markets will or won't do here? Let
31:55
me give you some examples on this, Bo.
31:58
If markets are at all-time highs, oo
32:00
that must be scary. People be like, I
32:02
don't want to put a dollar in, you know,
32:03
or any money into this investment cuz
32:05
man, aren't I buying at the top? I've
32:07
always heard the saying of buy low, sell
32:08
high, and here if the markets are all
32:10
time high, I'm really screwing this up.
32:12
Or what about if markets are literally
32:16
getting their teeth kicked in? This
32:17
seems like, why would I want to invest
32:19
in something that's getting beat up
32:20
right now? This seems like a bad idea,
32:22
too. Do you see how this cuts both ways?
32:24
If you're letting your emotions set when
32:27
you invest, you're really kind of going
32:30
to cloud up your judgment on how you're
32:31
going to do this. as well. And if you
32:33
don't believe that this can be
32:34
significant, we want to walk you through
32:35
a case study to kind of highlight how
32:38
impactful this can be. So, let's
32:40
consider an investor. Let's consider
32:42
Panicking Pat. Panicking Pat has $10,000
32:46
initially that he wants to invest. And
32:48
when he starts investing, in addition to
32:50
that $10,000, he's going to invest
32:53
$583 a month. He's just going to max out
32:55
his Roth IRA and he's going to buy the
32:58
S&P 500. So, he's following most of what
33:00
we say, buy an index, save consistently,
33:02
begin building wealth. But whenever
33:05
there's a down year, Panicking Pat gets
33:07
really, really nervous and he says, "You
33:08
know what? I'm going to sell and I'm
33:11
just going to wait for things to
33:12
improve." So, he sells after that down
33:14
year and then he sits in cash waiting
33:16
for the market to recover. How many
33:17
times have you heard this? Oo, it's
33:19
scary right now. It seems that the sky
33:21
is falling. I'm just going to sit on the
33:23
sidelines until I feel a little bit
33:25
better about things. So, that's investor
33:27
number one, panicking pad. But then we
33:29
have old faithful investor number two,
33:32
Manny the mutant. Manny the mutant. This
33:33
is what Manny says. Manny says, "You
33:35
know what? I'm going to do the same
33:36
thing. I'm going to invest $10,000
33:37
initially and I'm going to max out my
33:40
Roth IRA every year. I'm going to save
33:42
$583 a month and I'm also going to buy
33:45
the S&P 500, but I'm not going to try to
33:47
time it. I'm just going to buy every
33:49
single month. I'm not going to worry
33:51
about what's going on in the market. I'm
33:53
not going to worry about who's in my
33:54
office. I'm just going to keep buying."
33:56
Well, if both of these two investors
33:59
were to invest from 1999 all the way
34:04
through the end of
34:05
2024, Pat would have still accumulated
34:09
$670,000. That's awesome. Started with
34:12
10,000, max out a Roth, still got to
34:14
almost three quarters of a million. But
34:17
when you compare that to Manny who was
34:19
consistent and stayed true to the
34:21
strategy that he was implementing, he
34:24
ends up with almost double that amount,
34:28
$1.25 million over the exact same time
34:31
frame. I always tell people why if you
34:33
could find out doing it the easy way,
34:35
the the lazy way is better, why make it
34:38
hard on yourself? Because there's also a
34:40
great historical slide that I always
34:42
roll out when people are trying to tell
34:43
me they figured out a better mousetrap
34:45
on the timing. If you look at time in
34:47
the market versus timing the market,
34:50
look at this is some research that I I I
34:52
put this this is ended as of 2023. So
34:55
1988 all the way through 2023 looking at
34:58
the growth of $10,000 invested in the
35:00
S&P 500. If you just stay in the market
35:02
the entire time, that $10,000 is now
35:05
worth over
35:07
$400,000. $418,000.
35:10
If you just miss the five best days,
35:13
$264. So, so 5 days from 1988 to 2023,
35:17
there's a lot of days in that time
35:18
frame. 5 days cost you $200,000. You
35:21
missed 10 days, 191,000. If you miss 30
35:25
days, a month out of all these decades,
35:28
you miss just one month. Now, instead of
35:30
it being over 400,000, it's down to
35:32
71,000. If you miss the best 50 days,
35:35
it's down to 31,000. Do you see how your
35:38
emotions can literally betray you? Now,
35:40
I know this is an extreme thing and I
35:42
know also the trolls will be like, "What
35:44
if you missed the worst days?" Well,
35:45
nobody has the potential. There's no way
35:49
to say, "I'm going to place the trade
35:51
today to miss the worst day and then get
35:53
right back in on the best." What we've
35:55
seen is what you need to do to actually
35:57
be successful is just have a plan that
36:01
takes this all out. So, when you ask
36:04
yourself, when do I invest? The answer
36:07
is easy. If you want to be successful,
36:09
always be buying. AB, baby. Always be
36:14
buying. And you don't have to outsmart
36:15
yourself. You don't have to make it any
36:17
more complicated than that. All right,
36:21
Brian. I'm sold. I'm out. I'm there.
36:22
Here I am. Now, let me answer the last
36:26
question. Let me ask the last question.
36:28
You've told me who should invest and
36:30
what to invest in and where to invest
36:32
and when to invest. What about the very
36:34
last question? Now, how much should I
36:38
invest? Now, look, I I've already kind
36:40
I've laid out some breadcrumbs
36:42
throughout today's show. If you're young
36:44
and and you feel like money is just
36:46
short, just do something. Just
36:48
absolutely do something. But for because
36:52
just getting the ball rolling is going
36:54
to be the most important thing. But then
36:56
once you actually get it in there and
36:58
you start investing, now I want you to
37:00
understand a simple fact and this is the
37:02
breadcrumb I laid out earlier. Your
37:04
savings rate is so much more important
37:06
when you're starting out than even what
37:08
you're investing in in the rate of
37:10
return you're making. So, we try to tell
37:12
people, let's let's just get the ball
37:14
rolling and then let's focus on what you
37:16
can can control, which is your savings
37:18
rate. I love it. And we said, you want
37:20
to see how powerful this is. You want to
37:22
see this in a real life example. Again,
37:25
let's take two investors. Let's take Sal
37:28
the Savant who starts his career making
37:31
$50,000 a year. Let's assume that S gets
37:34
a 3% annualized wage growth and is going
37:37
to have a 10% savings rate. So going to
37:39
be saving but not going to work towards
37:41
the 25% that we talk about. But S is a
37:45
savant and S is an amazing stock picker
37:48
and because of that S recognizes a 25%
37:52
annualized rate of return. As a
37:54
reminder, S&P 500 over the last
37:56
something like 50, 60, 70 years has
37:58
annualized like 11%. But S is better. S
38:02
knows how to pick the winner. So S is
38:04
going to make
38:05
25% every single year. By the way,
38:08
that's that's so unrealistic. But let's
38:11
go ahead and just for the sake of
38:13
education. This let's let the assumption
38:15
flow through. But now let's look at our
38:17
second investor. Again, back to back to
38:18
Manny. Manny's also has a $50,000
38:22
starting wage, 3% annualized wage
38:25
growth. But Manny says, "You know what?
38:27
I'm not just going to save 10%. I'm
38:28
actually going to save 25% of my gross
38:30
income for the future and I'm only going
38:32
to make 10%. I'm going to have a well-
38:34
diversified portfolio buying lowcost
38:36
index funds and I'm going to make 10%.
38:38
Do you realize if you just took these
38:41
two investors with S making
38:44
25% every single year for the first 10
38:49
years of them
38:51
investing, Manny is out in front. It
38:54
takes s 10 years of making
38:57
25% every single year to make up for and
39:01
compensate for how much lower his
39:03
savings rate was than Manny's. It's why
39:05
we say all the time that your savings
39:09
rate early on in your journey is
39:11
exponentially more important and more
39:13
valuable than your rate of return. By
39:16
the way, this is so because we we did
39:18
this on the extreme on purpose. Sure.
39:20
probably by year five or six the SEC is
39:23
going to show up at Sal's door and go
39:25
what inside information do you have
39:27
because if you just look at active
39:29
managers versus passive index investing
39:32
there's a reason that index investors
39:35
outperform I mean it's in the 90
39:37
percentile plus and then here's what
39:39
those stats because I there's a human
39:41
condition where we always have this
39:43
overconfidence where we say well I'm
39:44
going to go buy the investment that's 10
39:46
because 10% of the investments
39:48
outperform the market but then there's a
39:50
research out there on SPA and elsewhere.
39:52
It says the consistency of the 10% is
39:54
never the same investments. There's a
39:56
lot of variation on what outperforms
39:59
from year to year. So to find an
40:00
investor that can outperform for 10 plus
40:03
years, it's just it's it's an outlier.
40:06
So you that's why I would tell you if
40:09
you end of the day if you come to how
40:11
much should I save because every one of
40:13
you is going to be a little different.
40:15
You're going to have different goals.
40:16
You're going to have different ages. But
40:17
don't worry, we've still created a great
40:19
deliverable and a resource for you if
40:21
you just go to
40:23
moneyguy.com/resources. This now lets
40:25
you lay over what's your age, what's the
40:28
savings rate you're considering, and it
40:30
will tell you how much of a replacement
40:32
you could potentially have at
40:33
retirement. So, please don't sleep on
40:36
this. go check out our how much should I
40:38
save resource so you can find out is if
40:41
you're 20s maybe 15%'s going to rock it
40:44
and knock it out of the park but maybe
40:46
you're 40 years of age and you're just
40:48
starting you're going to say okay it
40:49
looks like this 25% I see why these guys
40:52
landed on that as a savings an
40:54
aspirational savings rate it looks like
40:56
that is where the army of dollars needs
40:57
to be so they can work harder than I am
40:59
with my back my brain and even my hands
41:01
that that's the whole idea investing is
41:04
this wonderful tool where we can take
41:06
some of our hard-earned dollars today.
41:08
We can put them to work and we can
41:09
actually have our money work even harder
41:12
than we do. It does not have to be
41:15
complicated. It does not require a
41:17
finance degree. It does not require a
41:20
lot of mental energy. What it does
41:21
require is a little bit of discipline
41:24
and toning out the noise. And if you can
41:26
start your investing journey today,
41:29
there's a great chance that your future
41:30
self will thank you. So, here's where we
41:32
are. We have there's so much content
41:34
that gets you motivated. And yes, I
41:36
think we checked the box on trying to
41:37
get you motivated, but there's a lot of
41:39
content that I feel like it's lacking on
41:41
the how, the what, and the when, the
41:44
where. We just loaded you up with every
41:46
bit of that. And we can do that. We give
41:48
you all this free information. And just
41:50
so you you know, it's consolidated at
41:53
moneygu.com/resources. But there's going
41:54
to be some of you who catch this and you
41:56
say, "That's going to be great for my
41:58
niece, my nephew, or even my grandkids."
42:00
But my situation is even more complex
42:02
than what these guys are showing. Don't
42:04
worry because that's the abundance
42:06
cycle. We give you the basics. So it
42:08
creates the level of success that this
42:10
thing turns your simple financial life.
42:13
Success just naturally creates
42:14
complexity. And when you get to that
42:16
point where you're trying to figure out
42:17
how do I do this the best way possible
42:19
now that my life has gone complex.
42:22
That's the graduation point for the
42:23
abundance cycle. And that's where we'll
42:24
leave the lights on for you. That's
42:26
where you can consider working with your
42:28
own fee only wealth management with one
42:30
of our adviserss and we'll be there for
42:32
you because here's the key takeaway I
42:33
want you to know. You can either own
42:35
your financial life or your financial
42:37
life will own you. I'm your host Brian
42:39
Preston, Mr. Bo Hansen, Money Guy Team
42:42
out. The Money Guy Show is hosted by
42:44
Brian Preston and Bo Hansen. Brian and
42:46
Bo are partners with Abound Wealth
42:48
Management. Abound wealth management is
42:50
a registered investment advisory firm
42:52
regulated by the securities and exchange
42:53
commission in accordance in compliance
42:55
with the securities laws and
42:56
regulations. Abound wealth management
42:58
does not render or offer to render
43:00
personalized investment or tax advice
43:02
through the money guy show. The
43:03
information provided is forformational
43:05
purposes only may not be suitable for
43:07
all investors and does not constitute
43:09
financial tax investment or legal
43:11
advice. All investments involve a degree
43:13
of risk, including the risk of loss.
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A Beginner's Guide to Investing in 2025
The Money Guy Show