Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
Money Mindset - Part Two
217 Plays2 years ago
In this episode of the Uncommon Wealth podcast, we continue our Money Mindset series discussing the power of compounding, the importance of accumulating wealth versus staying wealthy, and the significance of making wise investment decisions. We'll talk about why you need a financial plan tailored to individual goals and values, and the value of pursuing passions and monetizing them to enhance retirement.
We'll also touch on why it's important to have a balanced approach to investing and the dangers of chasing big winners.
Recommended
Transcript
Living an Uncommon Life
00:00:00
Speaker
Everyone dreams of living an uncommon life and the best asset you have to achieve your dreams is you. Welcome to the Uncommon Wealth Podcast.
Mindset with Money Series
00:00:12
Speaker
We're going to introduce you to people who are living uncommonly. We're also going to give you some tools and strategies for building wealth and for pursuing an uncommon path that is uniquely right for you.
00:00:26
Speaker
Hello and welcome everybody to another episode of the uncommon wealth podcast where I am your host, Philip Ramsey. And I'm Eric Kramer. Thanks for tuning in.
Insights from Financial Industry
00:00:34
Speaker
We're super excited. We've been going on this series. I would say just about like your mindset with money and super grateful to be able to be working in this industry for over
00:00:44
Speaker
man, it's almost over 12 years, but let's just say over 10 years and kind of getting our own philosophy after having that experience in 10 years. That's something that, you know, when I first got into the industry, they're like, Hey, get gray hair and then you can manage my money. Well, I got gray hair and we're still managing people's money, but there is some kind of experience that happens that you just start understanding the way people think.
00:01:07
Speaker
the way that the overarching population thinks about money. And so this is
Mindset and Money Overview
00:01:12
Speaker
kind of our feeble attempt and to try to figure out and try to communicate what we've seen in the past. This is the second series. We've been kind of going on this thing for a while. And I think we're going to do it for a couple times more. So we have three topics that we're going to talk about today.
00:01:26
Speaker
Yeah,
Power of Compounding
00:01:27
Speaker
and then we're gonna and then we're just gonna kind of close it up But hopefully this gives you an understanding of one how you think about money or maybe just understanding how we think about money So Aaron, how you doing, man? Don't do it good. I'm excited for this. That was a great Intro to this a good job Like our first first one we go over yes Let's let's so let's give them all the topics and then we'll kind of dissect each one of them so
00:01:57
Speaker
the first time we go through the importance of like compounding. Hmm. Yeah. The seventh wonder of the world, or what is it? The eighth wonder of the world compounding. Yeah. Getting wealthy versus staying wealthy. Okay. So like getting or accumulating is different than actually having the money and then trying to keep it going after you're okay. That's the second topic. Third topic is,
00:02:27
Speaker
you know, just tell like, you know, you flip a coin, which side makes you a winner?
Aligning Finances with Values
00:02:34
Speaker
Okay. So like the odds of the odds of making money or, or keeping money or making wealth. Is that kind of the third? You know, like big ideas. Okay. Big ideas, big ideas and money, especially with the uncommon wealth brand. We have a lot of people who come and it's like, Hey, I got a really good idea.
00:02:53
Speaker
Sometimes those ideas are great, sometimes they're not, and so kind of working through that. One thing that we will say early on is we're financial advisors. We love to put emphasis on a financial plan. That financial plan has to be around your core values, the way that you're wired, the way you get excited.
Investment Lessons from Tony Robbins
00:03:11
Speaker
And so I don't have an elevator pitch. I just don't. I don't love them. I hate when people have a canned response. But when somebody asks me, like, what do I do? It depends on what mood I'm in, right?
00:03:21
Speaker
But I have been saying, I help people get excited about their money again. And like, huh, that's interesting. Because I feel like that's what we do on Commonwealth Partners. And so here we go. The first topic is the compounding effect. And something that I think Tony Robbins says in his book about investing is basically, I wish I would have just put it in the S&P 500.
Strategies for Compounding
00:03:43
Speaker
And like I have a couple of issues with that, but his whole overarching theme of this book, it's super long, too, by the way, is I just wish I would have put it in the S&P 500 or a low cost ETF and let this thing ride.
00:03:59
Speaker
And I would say, okay, I understand where he's coming from, but the experience that he had about all the things, the ventures that happened that maybe weren't successful, made Tony Robbins who he is today. And if he would have just put all his money in the S&P, one, we never would have gotten the wisdom out of him because I think there's really good stuff, but he couldn't have impacted the world like he did. And so to me, I'm like, okay, great. I understand what you're saying about compounding. It's powerful.
00:04:24
Speaker
but how can you continue to be Tony Robbins while also investing? That's kind of the thought, right? The contact on the S&P 500, this is a total side note sidebar, but like, I just saw a study on this. If you want to just invest in S&P 500, it's over a certain period of time, long period of time, like 30 years or something, your actual return
00:04:46
Speaker
would have only been 4% on your money. Oh, interesting. After inflation and everything like that and then like coming back from the dips and stuff. Yeah. Okay. So I don't, don't take those numbers to the bank. Like I, okay. I will just, but it was like something you're like, Oh wow. That's not as much as you thought it was.
00:05:03
Speaker
Right. And I think you said something there that's important to point out. One, that when you just look over the growth of the S&P in the past, let's say 30 years, the thing that you probably don't think about is inflation.
00:05:17
Speaker
and fees that you're paying in order to be in that S&P fund. Now, if you're just doing it by yourself and just putting it in a low cost ETF, that's one thing. But if you have advisors, that's a different thing, right? And so those two things you have to factor into the overarching like rate of return for the S&P or anything like that. So that's something to think about, but there is something that's powerful about compounding. Oh my gosh, it's so cool.
00:05:44
Speaker
It's so cool, but it also it's not easy. It's easy and it's not easy. There's something psychologically about like, it's so easy, it's not easy. And one of the biggest things about, you know, this whole compounding effect is letting your money continue to grow even when it's dropping.
00:06:04
Speaker
And I would say to compliment that, we call it dollar cost averaging, that's what the industry calls it, but it's like contributing and continuing to contribute when the market is down is super important for compounding. And so- And they say that like, I don't think it's Warren Buffett says like, our brains have a really hard time just even comprehending the power of compounding. Yes.
00:06:31
Speaker
That's right. But because it's like a linear, like a bell curve, it like goes straight up. And so the beginning, it's not that powerful, but at the end it is super powerful and it exponentially grows when it starts to compound. It wasn't, they say like Warren Buffett's wealth, the majority of his wealth was earned after he retired or something like that. After 65.
00:06:55
Speaker
Yeah. And I think everybody focuses on, you know, Warren Buffett is like the epitome of an investor. And he would say
Wealth Accumulation vs Distribution
00:07:02
Speaker
that the biggest thing that has made him successful is just time. He just did it early on and he kept doing it. And he would, he would, he would say like even some of the investments that he thought were great, like they weren't, but he just kept going.
00:07:16
Speaker
Yeah, I think that's the whole, that's the secret sauce to compounding is like time. You can't get the power of compounding in five years, one year. Like it doesn't work that way. It's, I mean, it's like anything compounding is over time that really builds up. Yep.
00:07:34
Speaker
It really does. And so you can do the numbers in your head. We can show you the numbers, but there's something psychologically about staying in the pocket, continuing to do the things that you know you need to do all while you're still pursuing what you want to do and getting excited about that.
00:07:50
Speaker
I think it's a compliment back to old Tony Robbins. There's a compliment of pursuing both. There's going to be things that you're going to be learning if you try to do your own business or start pursuing what you're passionate about. There are inherent lessons that will come to like.
00:08:07
Speaker
to head and you're gonna learn a lot better than putting your money into the market but they're two different i'd say skills that you have to learn and that's what we're here on commonwealth how do you mirror the two how do we continue to grow so at the end of the rainbow you're not like tony robinson say i wish i would have done this
00:08:27
Speaker
but you're excited about the path that you're on and you have, you know, this compounding effect. Cause it's powerful and it's, it's important. It's super important. Not to the messy, the money, the water's here, but like compounding is important in money and then just in life. Cause if you're starting a business, you're chasing that path, you're going to have failures. You're going to have bumps in the road and you got to keep growing. And if you keep building your skills upon your skills, that's compounding. Yeah, I would agree with that.
00:08:55
Speaker
Yeah, and it's the time that you get discouraged and you don't do it is when you don't get the effects of what you've just went through. So that's actually a really good point. So good job, Aaron. There you go. Thanks. I had a good idea. You always have good ideas. Okay. Second point is let's get it going. Come on. Staying wealthy versus getting wealthy. Yeah, right. Or yeah, you got it. Whatever you want. Like getting money, like building wealth versus
00:09:24
Speaker
Like keeping your wealth. That's a totally different deal. And it's a different mindset. We've seen it countless of times here at Uncommon Wealth. Yeah. Accruing wealth, sometimes you just keep doing it. You know maybe it's hard to do it. Sometimes it doesn't feel like you should, but you should keep doing it. And eventually, it ends up amasking normally to a considerable amount of wealth. OK. The point that I think I emphasize this,
00:09:54
Speaker
And I'm sure that we can probably put this in the show notes or something, but it's a graph on accumulating wealth versus the...
00:10:00
Speaker
the income
Psychological Shift in Wealth Management
00:10:01
Speaker
side of wealth. And it shows like no matter what the rate of return is, it can be completely opposite. So you can have negative 12, positive five, or whatever the market returns. You can flip that completely backwards. And at the end of the day, have a similar number at the bottom of it because you're accumulating wealth. So we all know the market's going to go up. We all know the market's going to go down. So if you continue to just kind of take the guesswork out of it, continue to invest,
00:10:28
Speaker
Chances are you're gonna have the same amount of money no matter what the rate of return is and how the sequence of returns happen. So let's just talk about that's accumulating wealth. Okay, but when we're talking about distribution of wealth, the rate of return and the sequence of return matters so, so much more.
00:10:46
Speaker
That's a small part of what we're talking about, but that is still important. It depends on whether you're accumulating wealth or you're starting to live off the wealth that you have accumulated. The rate of return is actually super important, more so on the distribution side, the time when you're taking money out. That's a little bit of an example of
00:11:07
Speaker
Accumulating wealth versus like staying wealthy Another way to think about it more on the psychology side of things is like we see a lot in our Practice since we have a lot of people going what we call uncommon Mm-hmm, you know they once they've hit success at their uncommon They get a lot of confidence in building wealth because they find out how valuable they are themselves Like I can just go make more money. Yes, but when you get into retirement
00:11:35
Speaker
And you're not no longer building anything. Now the wealth that you have built is very like it's a different shift in mindset because you can't just go make more money because you're done. You're done earning and building. Now you have to live off of what you have.
00:11:50
Speaker
And so like, you can't be like, I just want to go buy a yacht and I'll earn more next year. Like you can't earn that yacht. Like the market, you're depending on one thing to out earn that. And that's the market, not you and the market and things like that. That's right. So that's why I think it's, it's good that we're on this uncommon path because we try to encourage people to start figuring out what you're passionate about early before you retire.
00:12:15
Speaker
And if you get lucky enough to try to monetize that passion, it's going to make retirement a lot smoother. Here's what I mean. Like when you're first accumulating wealth in
Impact of Wealth Shifts
00:12:26
Speaker
your career, you're just putting money maybe in your 401k, you're saving it monthly. Eventually, you have to go to now living off of your money. And that's a scary
00:12:37
Speaker
transaction when somebody's been like, I've worked my whole life and I've put money in it. Now I'm not working at all. And I'm hoping that I'm going to have enough money tomorrow. It's just a scary proposition versus the people that do uncommon things and start getting paid as they are working. They're starting to work with their uncommon passion, let's call it. And they're starting to get paid for it. So even when they retire, maybe they can put more time and effort into that passion, which would then maybe
00:13:05
Speaker
make more money, right? And so they have a little bit more of a comfortability as like, hey, I'm still, I love what I do. I get to do it every day and people keep paying me.
00:13:16
Speaker
And it feels a lot like they used to be back in the day where somebody was giving them a paycheck. So the people that are just completely stopped working and now they're living off their money, there is a bigger emphasis on like, well, how's my account doing? Is it going down? Is it going up? There's a little bit of a scarcity mindset when that happens when you don't have anything else to focus on.
00:13:37
Speaker
Yeah, I think that's where like you gotta they call it like this like barbell the personality kind of thing. That's good. Or you gotta you gotta stay optimistic about the future. Mm hmm. And all things but it is good to have a little bit of that like paranoia or be paranoid about what will prevent you from getting to the future, you know, like of the unknown. Yeah, but like you gotta you gotta like stick to like
00:14:07
Speaker
you know, the known should give you that confidence and stuff. Cause the last thing you want is as soon as you start getting overly scared, like your frontal lobe shuts down.
00:14:19
Speaker
Yeah, you start making irrational thoughts or irrational decisions. OK, here's another thing, too, that we've seen a lot because the advice I shouldn't say because we have awesome people, awesome clients. Yeah, we do. At times, they will sell their business and that can be a lot of money. That can be a very successful transaction life changing, life changing and.
00:14:42
Speaker
in that could come with a pretty big pot of gold at the end of the rainbow, if you know what I'm saying. Yeah. Well, those people are looking at their money and maintaining that wealth is now a whole different mindset. To continue to push the envelope, whether you're putting it investments that could grow or have volatility, whatever, there is a different mindset of like, okay, now I need to grow there, keep this wealth.
00:15:06
Speaker
So that's something that you just need to know is different. And so when people get that kind of money dropped in their bank account,
00:15:14
Speaker
That's normal to think, okay, now what? Now we need to maintain. Yeah. Help listeners. If you're not in this boat, if you're, if you've been in this boat listeners, then you can ignore this part. But like for the listeners that are like, Oh, I think I'm, I got it. The simplest way I find to like really like be able to relate to this is take that big number, like throw out, I don't know, throw out a number, Phillip. 10 million, 10 million.
00:15:43
Speaker
Look at what a 10% swing to that money does. Million dollar, million up, million down.
00:15:51
Speaker
Yeah, like, so, I mean, down, I mean, up's like, oh, that's amazing. That's why compounding is beautiful, right? But down, you're like, oh my gosh, I just lost what? I wasn't even making that a year. That's right. Okay. But 10% down in a $10,000 portfolio or 20, or just a, even a $100,000 portfolio, 10% down, you're like, eh, that's the, I mean, I make more than that a month, you know? Right. So like, it changes your perspective completely when that big number
00:16:20
Speaker
like there's the swings are bigger and so like that's way more emotional than ever before so that's why we would say the plan financial plan is so important because then you'd be able to see like well can i still make it if there's a 10 percent swing those kind of things we would put a lot more emphasis on the plan so
00:16:41
Speaker
OK, so now we're going to go to like the bigger investments that you can make. And can
Learning from Investment Failures
00:16:47
Speaker
you be wrong? Right. And still making in the day. But that's where I'm focusing in on them, too. Yeah. So I would say one of the biggest reasons why I am who I am today is not because of the successes I've had in my past, but because of the failures.
00:17:02
Speaker
And so if you think about that, would you have gone through the failures and the trials again? Chances are you'd probably honestly say, no, I don't want to do that. But you know that those trials have produced something in you that you couldn't have learned otherwise if things were always rosy and peachy.
00:17:17
Speaker
Yeah, I mean so we had on our one of our other podcasts Now no one's gonna get released or if it's already been released But we got to interview my uncle and he's very successful and we asked him a question about his failure like well He would change it was like nothing cuz yeah failures give you so much Right and then in that pot then the same podcast he ends up saying like I want to answer that again Which I loved I appreciated but I honestly liked the first part of an answer. Yeah, I
00:17:45
Speaker
I wouldn't change anything because even the failures have produced something in me that I think I value. So let's talk about just investing in general. And we've talked about this at the beginning. And when you talk about compounding is Warren Buffett, like he would say, many of his investments that he put his money into were not a success.
00:18:03
Speaker
Yet we all know who Warren Buffett is and he's fairly successful. So we would probably say like, what? How can you even say that? And the point is that there's times where you make an investment. It doesn't go well. That doesn't mean your whole plan is thrown away. It's bad. It's just like, no, that one investment went bad.
00:18:19
Speaker
Okay, now, the other thing that I would say about this is big decisions are important. And that's why we like to make a plan for people. Sometimes those plans change. For example, I have a buddy that potentially could be changing jobs and that job is paying less than what his current job is. And so when we were, when he kind of called me and he was like talking through this, I was like, well, let me pull up your plan and let me punch in
00:18:46
Speaker
the new number of what you could be making, and we can kind of in numbers take the emotions out of it and see if you're going to be okay, right? What
Balancing Investments: The Barbell Approach
00:18:55
Speaker
we found is he'd have to work probably one or two years more in order to have the same success as other job paying higher, but then that was a decision him and his wife could talk through.
00:19:05
Speaker
Hey, is this change that important for us to work one or two years more? And he's leaning towards yes. So kind of exciting to be able to be a part of that of like, Hey, enjoy your day every day more than you did yesterday. And if that means make a change, but it's a monetarily backstep, is that going to cut, you know, change your plan? But that's a big decision, right? And I was super grateful to be a part of that one, because I'm his friend to I'm a financial advisor, which also it makes an impact.
00:19:33
Speaker
on what we're dealing with. So, yeah. I love the fact like you will be able to like take the numbers so he can digest that. And it was like, can I just that, but then like really get into the nitty gritty of like the emotional, like, yeah, I got to work two years longer, but maybe, I don't know. I wasn't in this conversation, but maybe it's like my quality of life will go up because my job stress goes way down. And so it's like, for two more years. Cause my quality of life in the time span over time, it'll be way better. It's good. It's good.
00:20:05
Speaker
Okay, so I also think like you said more, you said about the barbell approach. I think that's applicable to this. Yeah. So walk the listeners through what the barbell approach is.
00:20:17
Speaker
So being optimistic, you know, so being optimistic, but being aware of like your risks, really. Right. So I would say like have just steady things that are in your portfolio and then just make sure those are consistent. And then you can then on the other side, maybe make, you know, on 5% of your portfolio, like the, Hey, I hope this works.
00:20:38
Speaker
If it goes to zero, it's okay too. Right? So that's kind of like, okay, I'm a meathead, so this analogy might not work for everybody. It's a barbell, so you're going to talk about it, you know? Yeah, I'm going to talk about it. It's a perfect analogy. So for like the word. But anyways, if you got a bar up on a squat rack, you know, and it's empty, pretty much
00:20:58
Speaker
how much weight can you put on one side before that bar just flips over? Right? Okay. Let's keep it even. Like you have to be aware. Like, so like, let's be optimistic and let's go after fun, big things, but you can't stack four, five 45 pound plates on one side and not put anything on the other side. It's going to flip. But sometimes it does take only a 25 or one 45 on the other side of that being like a little paranoid, being a little cautious, understanding the risk.
00:21:28
Speaker
you know, to help make sure the bar doesn't flip. Mm hmm. It's good.
Avoiding the Hype in Investments
00:21:32
Speaker
Right. I like it. OK, good. But I mean, I think that also the other big portion about this win thing that we got touch base on is like everyone follows these big winners like, oh, these this person did this. Let's do that. It's like, don't always be chasing the big winners because if
00:21:53
Speaker
Most of the time, I know like we've talked about this before, it's common, but if you're hearing about it, like most likely, yeah, it's too late. So if there's something to be learned from it, not saying that, but like jumping on the bandwagon, it's probably over. It's good.
Episode Recap
00:22:12
Speaker
All right, so in this podcast, I think the three things that we really were talking about is just the power of compounding.
00:22:19
Speaker
Plain and simple. How do you do that? It's a system over time. Take the emotion out of it. Continue to dollar cost average. Deal. The other thing is just when you're accumulating a different mindset on once you have wealth, and then also the systematic rate of return is important, more important on the distribution side of things.
00:22:40
Speaker
And then the last thing is like how, what are you chasing after? What big things are you, what is in your portfolio? What is it in your life? And then how does that affect your overall plan? Those are important to talk through. Those are my small, would you recap that in any way, any other way? No, I think that's...
00:22:58
Speaker
Yeah, I mean compound, compound super powerful out of the three. I feel like hopefully that's what you'll take away most there. Okay. Compounding in your life and in your portfolio both. Yeah. And then yeah, like differences of building wealth versus keeping your wealth and
00:23:16
Speaker
being diligent about your wins. Deligent. I love that word. It's my word of the year. So, okay. You've been listening to Uncomma Wealth Podcast. If you ever have any questions, we would love to hear from you. You can email us at podcast at uncommawealth.com. Let us know your thoughts, what you want to hear, if this was helpful. A lot of times Aaron and I don't know who's listening to this. Obviously we get statistics every month.
00:23:39
Speaker
twice a month I get, or once a month. We just like talking to one another. Yeah, we kind of do. We kind of geek out about this stuff. So we hope this is valuable to you. Thanks for being a listener. Thanks for being on the uncommon bandwagon. We appreciate you. Until next time, go be in common.
00:23:59
Speaker
That's all for this episode brought to you by Uncommon Wealth Partners. Be sure to visit uncommonwealth.com to learn more about our services. Don't miss an episode as we introduce you to inspiring people who are actively pursuing an uncommon life.