Financial Advisors Correct the Internet (Part 2)

0:00Brian Preston:This episode is brought to you by Accenture. When your advertising operations fall out of sync, everything else follows. Spotify and Accenture are working together to reinvent the rhythm of ad sales, using automation, analytics, and smarter workflows to simplify campaign delivery and access better data across the business. The result? Less time spent on operations, more time connecting brands with the moments and fandoms that matter most. Learn more at Accenture.com slash Spotify. Class it up with Crocs. You know back to school is coming in fast. So why wait to find your new fave footwear? Step into a local Crocs store and step into your new look.

0:43Brian Preston:Try it. Style it. Make it yours. Because the right pair doesn't just show up. It shows off. First day fits, handled. Walk out ready for whatever's next. Visit your nearest Crocs store today. If you're worried the internet's lying to you, never fear. We're here to correct the internet. Brent, I am so excited to correct the internet today. Here we go. I bought into the Pelosi fund. It's Caleb. It's doing really well. I bet it is. Yeah, I only put$1 ,000 in there. It's beating my own money, guys. Oh, Caleb. Come on. It's crazy that you could know, oh, we're going to do this big deal with AI chips.

1:22NVIDIA makes AI chips. I'm just going to buy a ton of NVIDIA stock.

1:26Brian Preston:and then boom, we pass this thing. Hey, look at that. 500 % increase. Nancy Pelosi is the scapegoat. But if you look, it's red, blue, across the line. They're all trading, making tons of money. They all go into Congress broke. They all come out rich as f***. And they get$100 ,000 a year. It is amazing that there's not more restrictions on these elected officials with essentially profiting from knowledge. Because the insider trading all through what we do has a lot more restrictions than what our elected officials have to deal with. Yeah, insider trading is illegal, but folks getting called on it and actually being able to track down insider trading is not clear-cut black and white.

2:07Brian Preston:And that is a little bit frustrating for everyday investors. Now, what I think is the better learning thing here is oftentimes you can come up with an idea and you're like, oh, I'm going to go buy this fund. Maybe it's some fund that tracks a politician, or maybe it's some other fund, some high flyer, some growth, some tech thing, and all of a sudden, you do it, and you get a 20%, 30%, 40 % rate of rate. Maybe you participate in an IPO of a stock that comes out, and all of a sudden, it shoots through the roof at IPO. Holy cow, I'm a genius. I've got to double down. I figured this out. And lo and behold, if you give it enough time, time will expose all fools.

2:42Brian Preston:And if you give it enough time, you'll recognize that, man, maybe that strategy I figured out, maybe that thing I thought that It was this magic bullet that was going to go make me all this money. Wasn't quite as good as I thought. And maybe the thing I ought to be doing with my dollars is the boring, slow, consistent, low-cost index investing that's proven to build millionaire after millionaire after millionaire after millionaire through time. Well, and even if you wanted to use this strategy, Nancy's retiring. So just stick with the S &P 500. That's an applause line. I don't think people truly understand what Robert Kiyosaki means by savers or losers.

3:20Brian Preston:If you're getting your feelings, you probably need to listen up. Yeah, because the advice you're listening to right now is the advice that was given to you before the iPhone even came out. You save$10 ,000. It's sitting in your account. Inflation, let's call it 3%. Money debasement, let's call it 10%. The hurdle rate is 13 % for you to break even. Last time I checked, high yield savings accounts aren't paying 14%. So you think you're getting a good deal, but you're already getting taxed on that interest anyway. So rug pull. Oh yeah, the S &P 500 is pretty decent. It does just around 13%. All seriousness though, look into assets that grow over 13 % in a year or find a way to exponentially increase your income over 13 % in a year.

4:06Brian Preston:Or you can start a business and you can exponentially increase your income. What was the 10 % money debasement thing? I don't know. He threw so much in that cookie jar that I don't even know what the point. I have so many questions! Look, I thought he was going down the solid path, whereas basically you can't just let your money sit in cash because inflation's going to eat it alive over the long term. But then when he started throwing tomatoes at the S &P 500. I mean, we have shown over and over and we've even, we survey our millionaire clients being consistent and starting early, even with things like the S &P 500 is going to make you fabulously wealthy and successful over the longterm.

4:49So to hear somebody poo-poo it really kind of disappoints me because what can you, yeah, maybe you can do a one-off and make greater than 13 % in a year, but consistency? Nah, get out of here.

5:02Brian Preston:Yeah, that's what I was going to say. It's not untrue that entrepreneurship and investing in small business, that sort of thing, can have outsized returns, but they are outsized opportunity, low probability success. But you know what has a high probability success and also a lot of opportunity? Investing in low cost index funds like the S &P 500. Yes, inflation will erode your money, but if you can earn 8 % to 11%, which is what the S &P makes on average over the long term, then I'm going to argue your dollars are not just going to keep up and keep pace with inflation. They will actually grow through time, increasing your purchasing power greater than the rate of inflation, which is what you want to do as you build towards financial independence.

5:43And if he was kind of implying on real estate, because Kiyosaki's real estate, with levered debt, you know, guys, if you do that too early, all you're going to do is play the wonderful game of big banks taking from little pockets when the market goes bad and you don't have other people's money to pay the rent. So make sure if you're going to do real estate, we love real estate. We do real estate. Just have deep enough pockets that you can survive those bad moments because they will come your way while you're doing real estate. Here is what a financial advisor would likely do with your money if you gave them$200 a month to invest.

6:13The first thing that they would do is they would just open up a Roth IRA for you. This would just be the investment account. Now that$200 would go into that account, but it would actually get split into three different buckets. The first bucket would be$120. The second bucket would be$50. And the last bucket would be$30. Then they would take this$120, the bulk of it, and they would basically put it into S &P 500 index funds, things like VU, for example. They would take the$50 and they would invest it likely into international index funds, VXUS is an example. Last$30, they would probably put into something more aggressive, something with higher risk.

6:56As an example, QQQM, they would just automate this entire process by connecting your bank account, setting up an automatic withdrawal of$200 and then automatic purchases of all these index funds in these exact amounts. Like if you did this from the age 30 to 65, at the end, you'd end up with about$360 ,000. Not bad. Here's the thing, if you did this yourself, you'd actually have closer to$458 ,000 just because you would have to pay them about a 1 % fee every single year. I agree with everything.

7:32Brian Preston:And I mean, literally everything that this guy said, if you're hiring a financial advisor and all that financial advisor is doing for you is opening up a Roth IRA, having you deposit$200 and auto investing that$200 across three different funds. Yeah. You shouldn't pay an advisor. That's not the thing that an a financial advisor should be helping you with. And if you're paying 1 % for that type of service, you are likely overpaying. If you're only getting investment advice from your advisor, that industry has already been commoditized. You do financial planning when your life gets complicated, when you actually get to a situation to where you don't know what to do with your taxes, you don't know what to do with your retirement plan, you don't know what to do with your investments anymore because you know there's some efficiencies that you can pick up.

8:13And also don't forget, everybody always loves to quote the 1 % rule, But when you're worth$2 million,$3 million,$5 million, everything gets cheaper and cheaper. This is like buying toilet paper at Costco.

8:24Brian Preston:That's the most frustrating part to me. Price is what you pay. Value is what you get. Every time you see one of these people line up what a financial advisor does, they assume that the financial advisor adds no additional value. Well, the argument would be if you can do it all on your own the exact same way and you get no value from what a financial advisor would provide, then don't hire a financial advisor. An advisor ought to be able to add enough value to your financial life that not only does it justify the fee, but you are in a better place because of it. Price is what you pay. Value is what you receive.

8:56Every one of our clients can vote with their feet. What I mean by that is that we don't do any proprietary products. We're using index funds. We're using ETFs. No lockup periods. Exactly what he covered. So you have to ask yourself, why in the world are all these millionaires not leaving when we let them? We even lead with in the initial when they're signing up, look, if you don't like this after a year, if I can't do these three things that I told you I can do, leave. And they don't. This episode is brought to you by Facebook.

9:27Brian Preston:So you were scrolling on Marketplace and there it was, the bike you'd been searching for. You sent a message and it turned out the seller was super chatty, kind of funny and an avid cyclist. The next thing you know, you're in a cycling crew. Well, a community cycling group. The thing about Facebook, you might find more than what you're looking for. From a browse to a bike ride, this summer, find more on Facebook. Rich in your 20s, if you keep wasting money on these three things. First is your lifestyle. Most people make it, spend it, make it, spend it, and have nothing to show for it. Second, a house.

10:06Most people in their 20s aren't married, so they don't need to buy a family home. Instead, buy rental properties and make some passive income. Third is a car. Most people finance a luxury vehicle with money they don't have to impress people they don't even like. Instead, buy a cheap second-hand car and you'll have the last laugh.

10:23Brian Preston:I love one. I love three. I don't not love two. I would just put a note on it. I would house hack it. Yeah, I love that. That's a great example. Yeah, house hacking is a great alternative to telling people to jump right into what, in our system, it's step eight of the financial order of operations to get into doing real estate investing. I think what I'd rather you do is probably around step four, when you're trying to buy your own primary residence, why not try to find a duplex, a quadplex or something in your area? Because not only are you going to use other people's money to pay your own mortgage, but the banks, because you're living in that house, are going to give you more favorable underwriting.

11:00They're also going to give you more favorable on the interest rate. It's just a better deal all around. Don't just jump in to deep dive into the deep end of real estate when there's other ways in between.

11:11Brian Preston:When you think about one and three, buying or letting your lifestyle increase or also buying luxury vehicles are often things that you do to impress people whose opinions do not matter. Don't waste your money doing those things. Only spend money on things that you truly value. Don't worry about what the world around you thinks. We are in$30 million worth of, which means we owe banks$145 ,000 every single month in mortgage payments. Now, let me explain to you why that's a good thing and why it creates massive, unachievable wealth for me. So that$30 million worth of debt allows me to own$50 million worth of real estate.

11:51Brian Preston:So that's$20 million worth of equity that I would not have if I was not in that$30 million worth of debt. But on top of that, that debt owns real estate assets, and those real estate assets bring in over$350 ,000 in rent every single month, which, of course, is more than my$145 ,000 in mortgage payments plus all owning expenses plus positive tax-free cash flow. And if you want to learn how to do this for you. This is exactly how Dave Ramsey went bankrupt back in the 80s. He was way over leveraged. And all it takes is another COVID to wipe this guy out completely where the government's like, you can't evict anybody and they're not going to pay rent and you're going to like it.

12:31Brian Preston:Meanwhile, the mortgage companies and lenders don't care. They're going to collect. And so this guy is not taking into account risk whatsoever. And it drives me crazy. You know what? I don't disagree with what George is saying there because if you are highly levered and you have no financial foundation to pull back on or to fall back on, when COVID happens or when the Great Recession happens or when one of those things happens, it can cause you to go belly up. That's why if you are going to invest in real estate and you are going to take on debt, you better make sure that you are deep pocketed enough that you can weather those financial storms.

13:04Well, the team is taking my financial sidearm away. If I had it, I would flip it around and then start doing the math. There's a big difference between if you took down this debt pre-2022 or even 2021, when you could get interest rates in the 3 % or less, even on some commercial property, versus right now, you're probably going to be at 6 % or greater. So for you to think that you're going to get the exact same return as somebody who might have done this five to six years ago might be putting yourself in a box or in a bad situation because the other people's money, not only with what George said from a risk perspective, but you just might have a bad deal from what is even this property worth.

13:45Brian Preston:Yeah, and let's not sleep with the fact that he said he had$50 million of assets with$30 million of debt. That's$20 million of equity that he has in those assets. Most people who want to get into real estate, who want to start on this path, don't get to start with$20 million of equity. They want to start, okay, I'm going to borrow as much as I can and put as little down as possible. If you're playing that game, there's a very good chance you're going to get yourself into a very scary and very, very dangerous situation. Here's a secret I learned from rich people that took me forever to understand, but I'm going to explain it to you like you're a fifth grader.

14:19Oh, I can't wait.

14:20Brian Preston:This is going to blow your mind. So this is using a whole life insurance policy as your own bank, essentially. So if you had$30 ,000 saved and you put it in a bank, you'd earn 1 % interest over 10 years at$33 ,000. It's like nothing, right? Or three and a half. Well, if you wanted to buy a car for$30 ,000, you'd take that money out of the bank and then your 1 % would go to zero. This is why banks are rich and we're not. Now, a whole life insurance policy, when you put that$30 ,000 into a policy, it earns regular market returns. So 10 % interest, power of compound interest, you've probably heard this before, right?

14:54Brian Preston:10 % interest for 10 years turns your 30K into 81K. The kicker, when you want to buy that car, you can take the money out of the policy, and it still gains this interest while you're paying it back to yourself. There's just a lot. Where's the cost of the insurance? There's just a lot of stuff wrong. There's a lot of hands in the cookie jar when you're buying insurance products. There's the cost of the insurance. There's the agents that are selling you the insurance. And 10%. When's the last time you reviewed a policy that consistently made 10 %? Let's go down this path and say that you did do the$30 ,000 of the policy and you did earn 10%.

15:31Brian Preston:Let's say that it turned into$100 ,000. Here's what I want you to do. I want you to go buy a $100 ,000 car or a$100 ,000 beach house or$100 ,000 fill in the blank. If you pull all the cash value out of that policy, you know what you have to do? You have to then make sure that every single year you are putting enough back into that policy to cover the cost of insurance so that the policy does not lapse and create a taxable event for you. If you don't have the cash value in there to sustain that, then you have to put the money in. You know what happens every year you get older and older and older?

15:59Brian Preston:The life insurance gets more and more and more and more expensive. It is not a free launch like these infinite banking people try to lay out. It does not work the way that he described. Anybody who says they've created a better mousetrap, but it's got a lot of fees and commissions, you have to scratch your head and go, something's just not math in here. Children are a lifestyle choice as much as they are a financial choice. I always have people telling me it's easier for me to retire because I don't have kids. And yeah, it's true. My life is so much easier. I get to spend my entire evenings working on my business.

16:29Brian Preston:I don't have to wait in the school pickup and drop offline. I don't have to feed anyone except myself. I get to sleep in every single weekend. I don't have to pay for daycare. I don't have to save for someone else's education. I get to focus on my financial independence and my happiness first every single day. That was an intentional choice I made because I want to live a certain life and children would quite frankly, ruin the life that I want to live. Does that mean I don't like kids? No, I love kids. If life wasn't such a capitalist hellscape, I would consider adoption, but I just refuse to be trapped working forever, raising the next generation of workers for this system.

17:02Brian Preston:I want to get in, get ahead, and get out. All right, so that's a choice. That's an opinion, and I certainly don't want to fault her for her opinion and her feelings around that, But I agree with you. It's kind of sad. I have kids and I love my kids. And are they a burden sometimes? Absolutely. Are they expensive sometimes? Absolutely. Does sometimes I just want to grab them? Absolutely. Would I trade that for all of the money in the world? Not a chance. I worry that there will be some fulfillment that does not happen if she thinks that just having money and having wealth and having freedom is that all this life is about.

17:41The thing that troubles me, and I want to share this, and maybe this is too much sharing, because y 'all know I'm at this stage of life now where I kind of wish we'd had more kids, because mine are starting to leave the house. And here's the thing, I can go back in time and remember who I was back when I got married. I didn't really like kids. I can still remember a moment where I was in public accounting. We were at a team outing, and I was talking to some other of the male associates there, and a kid fell over and hurt their knee. And everybody was making fun of us because we all just stared.

18:13We didn't know what to do. And I was like, I'm not a kid person. We don't know what to do to fix this kid. And then I have my own children. And holy cow, I was like, okay, I'm not a kid person, but I love my kids. There is something really amazing that is in us that when you have your own children, it is a love that you just can't fathom what it is. I mean, it is just the strangest thing because I've never considered, I don't feel like I need to smell babies and do all this other stuff. But as soon as I had my own kids, I was like, oh, I'm in on this. I hate to hear so much pessimism drowning out what could be a lot of joy in this person's life.

18:51I borrowed$300 million.

18:54Brian Preston:You borrowed$300 million. And I bought the best real estate in the world for pennies on a dollar. That's how you get rich. Not by working hard and putting in a stupid 401k full of stocks, funds, funds, and ETFs. Those are for the peasants. I don't touch that garbage. It's rage baiting. It's just not true that you cannot build wealth that way. And I would argue more millionaires have built wealth that way than by going$300 million in debt. Do you know how you get to the point where a bank will give you$300 million? You had to have enough success and enough financial foundation underneath you that you were a good bet for the bank underwriters.

19:32Brian Preston:Here's the thing. The internet does not have your best interest at heart. But we believe that there is a better way to do money. It's why we have all of our resources available at moneyguy.com slash resources. All of our free tools, all of our calculators. They're free. Because we want you to be able to do money better. Yeah, I mean, our system is easy. We go take all of our free stuff. Create success. We don't ask anything of you until you reach a level of success that it's gotten complicated. Your simple life gets really complicated with success. And then I want you to remember who planted all the seeds, who gave you the knowledge.

20:08That's how the abundance cycle works. We love to work with you. We work with people all across the country. I'm your host, Brian, joined by Mr. Bo. Money Guy team, out.