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Episode 14: What You Need to Know About Investing – One of the Seven Sources of Residual Income
145 Plays7 years ago
That 401k or IRA is fine, but there are many other ways to manage your money for residual income now – not just sometime after retirement.
On this episode of the Uncommon Life Podcast, we dig into the topic of Investments. It’s a fun and info-packed duocast with co-hosts Bryan Dewhurst and Phillip Ramsey.
For many people, investing consists of putting some money aside in a 401k and/or maybe some IRAs. But there can be so much more to your investment picture. Phillip and Bryan talk about ways to invest and save to make an impact in the more immediate future, not just money that is set aside and untouchable until you are 70.
Bryan and Phillip are passionate about helping people learn how to invest wisely, along with 6 other sources of residual income. You’ll learn why pensions are much less prevalent than they were a generation ago, and how today’s employees and entrepreneurs can make the most of their investment dollars.
What you’ll learn- The difference between non-qualified and qualified investments
- Why pensions are mostly a thing of the past
- How to plan for the future without tying all your money up in traditional retirement accounts
- The four layers of fees you need to understand when you go to invest
- The difference between a mutual fund and an ETF
- How you may be speculating when you think you are investing
- Why a technical analysis is preferable to a fundamental analysis when choosing stocks
- How to be entrepreneurial and protect assets for the future
- Smart ways to leverage your money when you are younger and when you are older
- What an “engine account” is and how you can use it to generate cash flow
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Transcript
Defining the Uncommon Life
00:00:02
Speaker
Everyone dreams about living an uncommon life, but how we define that dream is very different for each of us. And for most, it's a lifelong pursuit.
Introduction to Hosts & Podcast
00:00:11
Speaker
Welcome to the Uncommon Life Project podcast. We're going to introduce you to people who are living that life or enjoying the journey to get there. We're going to also give you some tools, tricks, and tips for starting or accelerating your own efforts to live an uncommon life.
00:00:27
Speaker
A life worth celebrating and savoring. Please welcome your hosts, Brian Dewhurst and Philip Ramsey. Hello, everybody. My name is Philip Ramsey. And I'm Brian Dewhurst. And we are coming back at you with another podcast with the Uncommon Life Project. This time, it's another duo cast with yours truly and the one and only Brian Dewhurst. Welcome, Brian. Thank you very much.
Exploring Residual Income Sources
00:00:50
Speaker
So, what we thought we'd do today is another one of our sections of the 7 sources of residual income. And I gotta be honest with you guys, this one is gonna get a little heady. So, hang in there with us. I think there's a lot of information. We're gonna try to make it as fun as we can. We're gonna ham this up. Ham it up. This is gonna be the most exciting podcast we've ever done.
00:01:12
Speaker
And here's the funny part. It's about investing. So this should be the place where we hang our hat on. And this is one that, I mean, in all fairness and all honesty, this is the one that we absolutely do. And I think we do it decent as I think we do it okay. But this is the one that we're not the most excited about because it doesn't seem like it really puts people in control or it might give them cashflow for the monthly, but they're not learning anything while doing it. And so this is probably the one that,
00:01:42
Speaker
is maybe the easiest one for people to jump into for the seven sources of residual income. It's just one that Brian and I just feel like it's part of the puzzle. It's not the one that gets us. It's a puzzle piece. It's a puzzle piece. Well, and I think, you know, when you look at our podcast, Philip, I think we both have enjoyed the interviews.
00:02:02
Speaker
and just the stories that come and we haven't had one person. Have we had one person that's like, Oh, I made a million dollars in the stock market. You know, and not to say you can't because obviously the people in wall street do, but I think when you look at the main street, like this is the long-term
The Evolution of Retirement Plans
00:02:20
Speaker
play, right? Like you're putting money in for the long-term it's growing, you know,
00:02:25
Speaker
And I think too, when you look at the stock market in terms of telling a story, I was always attracted. I grew up in a brokerage firm, you know, working, well, not working, but I grew up in one just because my mom was in it. And then I did end up working for her through college. But the thing that I've always been drawn to by the stock market is the stories, right? Is the story of a business entrepreneur, he takes his company public, he has a big vision, and the stock goes nuts, right? Like, I think we can all relate to that. Totally.
00:02:54
Speaker
And so I think with some of it though, and some of the things we'll get into today, those stories get lost in the minutia of all this information. And I think ultimately that's what's drawn people to the stock market is the American dream and hitting it big. And, um,
00:03:11
Speaker
You know, let's dive into that a little bit because it always hasn't been this popular. There used to be back in the day, they had pension plans and things like that that actually would help people in their cashflow after they retired. And then when was that transition to the pensions weren't there as much and the employees decided they were going to roll out a like a 401k plan.
00:03:35
Speaker
and get it, you know, do a employee match and all this stuff. And so we're going to kind of talk through that. Yeah. So we're going to talk through that stuff. We're going to get into the weeds a little bit. Hopefully.
00:03:50
Speaker
Let's keep riffing on that real quick because I think it's important and yeah, come on, you know, I think the So I don't know if everybody's seen this movie if you haven't it's actually pretty good. But The infamous gordon gecko, uh wall street was charlie sheen, uh before he went crazy. No offense charlie But you're getting a little weird bro. I mean he might be listening now. He might be brian might be But anyways
00:04:15
Speaker
So yeah, like you said, most companies had a pension plan or a defined benefit plan as they were called. And it required the companies to carry a tremendous amount of cash and investments on their balance sheet. And then the reserves that were required for the company to maintain to protect those plans was very,
00:04:37
Speaker
It was very expensive to them on their balance sheet and it would take a lot of profits and so in the 70s as Wall Street grew Some people and that's the Gordon Gekko plays is basically a corporate raider And what he would do is what they figured out was hey we can go in and buy this company with this huge pension plan and all these assets and
00:05:02
Speaker
And then we're going to strip out that pension plan and basically stop it and cash people out of it and take it off the balance sheet as a future liability. And then the company is instantly more profitable. And so they started doing that in a rapid pace and firing people and letting people go and stripping out all these benefits.
00:05:23
Speaker
And then there was a huge backlash to this like hey im banking on that thing that's part of my compensation as an employee and send and so then wall street and the government got together and created the arissa act. Which was really the replacement of the pension plan.
00:05:41
Speaker
And so now we have the defined contribution plan, which puts more of the impetus on the employee instead of the employer. And it's very, you know, it's not impactful really to the balance sheet of these companies. So that's really what started this whole retirement plan business. And then, you know, financial institutions, and I'll make this last point here and we can go somewhere else.
00:06:06
Speaker
Institutions, banks, insurance companies, they want your money as long as possible. They want as much of it as they can get. They want it systematically, and they want to hold it for a long period of time, and they want to give you back as little as possible.
00:06:19
Speaker
Hence the retirement plan. So it makes perfect sense how Wall Street wins in terms of traditional financial planning and putting your money in the market. But I don't know that it's been the smooth ride that it's been perceived as in Main Street America.
00:06:40
Speaker
That's a great point. I'm sure we've mentioned this in podcasts before, but we've talked about how we as advisors see younger individuals starting to be more entrepreneurial when we started. Right now, we're seeing a lot of retirees and they kind of bought into that model. The 401k model, we're getting an employer match and they're coming out. And honestly, I would say
00:07:07
Speaker
80% would say they thought they'd have more money than they thought that they would have, right? I think it's 100%. Yeah. They all think that they were thinking that this was going to, at the end of the rainbow, be more profitable than they thought it was going to be. And so now we're seeing kind of like a reversion back to, I think my grandpa
00:07:27
Speaker
and our grandparents were more entrepreneurial and trying to get into businesses and trying to create businesses and do things on their own. And I would say maybe that it might have worked for some people, maybe not 100%, but it seems to me like the people who are retiring now
00:07:43
Speaker
thought they would be in a different place currently. And so when we see that, I mean, we have to call a spade a spade. It seems like they wish they would have had more control of their time and money throughout the X number of years, 44 years, for example, my father.
00:07:58
Speaker
So this is why we're kind of passionate about the seven sources residual income, but this is one of those seven sources. So we're going to talk to big one. It is. So, and you know, this can be as big or as little, and this is always what we talk about for the seven sources. This can be as big of a part of your plan or as little as part of your plan as you see appropriate. So let's go ahead and I want to talk about the qualified money
00:08:24
Speaker
versus the non-qualified money. And this is where it's going to get a little bit heady, as we will say. So we'll try to keep it exciting. We'll try not to lose you. Okay.
Qualified vs Non-Qualified Money
00:08:35
Speaker
I think to think of it very simply is like there's only two types of money. If you think about a coin, there's only two, two sides of a coin. There's actually a third with the ring, but let's just say there's only two. So there's non-qualified
00:08:50
Speaker
versus qualified. Non-qualified is your now money. That's kind of how we talk about it. Or your bank money, your checking account money, your paycheck money. You go and buy a real estate investment. It's probably that type of money. Then your qualified money is the retirement plan money. I got to put money away to get out of some taxes or my employer has a 401k and I need to do it to get the match. It's that money.
00:09:14
Speaker
So, Roth, IRA, 403B, 457, all those different types of plans is your qualified money. And we think, you know, and why we're focused on the seven sources of residual income is because we think there's a lot more wealth opportunity with your now money or your non-qualified money because there's so many different things you can do with it. I think people forget, you know, if you get a rental property, you got somebody you've never met before paying you money every month.
00:09:40
Speaker
Or if you start a business, you got employees that are working for you got multiple people that are generating money for you and all the different various sources of residual income. But when you put money in a qualified plan, you can really only benefit in three ways. You putting money in, your employer putting money in,
00:09:56
Speaker
And then, you know, the long-term appreciation of the stock market. That's really it. I mean, there's only real three ways to grow that account. And the third of that equation can go negative on you. It doesn't have to go on. Right? Yeah. For sure.
00:10:12
Speaker
So we think just the non-qualified and solving for the residual income to match or meet or exceed your monthly income needs to survive. Like if you just focus on that before you'd ever go into the qualified money, it makes way more sense. And we see all these young people like, you know, 25, 18 to 25, 18 to 30, and they have already plowed. I mean, in some cases, almost $100,000 into retirement plans and they have
00:10:42
Speaker
very little money in the bank then they wanna get married they wanna buy a car they wanna buy a house they wanna buy a rental property but their wealth is tied up and and conversely i think the last plan is we have a lot of people in their fifties and sixties that are like i have too much money in these retirement plans i wanna do something
00:11:00
Speaker
else, but they're at the top of their salary and they've got to max these accounts out because they're getting crushed in income taxes. So if the young people would just solve for their non-qualified needs of how much money they need and building that up through residual sources in their 20s and 30s, they could probably retire by 40.
00:11:20
Speaker
And then if you have excess money, then put it into the market in these qualified accounts because you do need the tax deduction and you have it. Yep. So now let's quickly talk about that because you touched on something that I want to dive into like we always do. So here we are. You said, so let's say this whole thing works. The qualified plan, when you've been putting your money in, your employer has been matching it, and now you have $2 million of your qualified plan.
00:11:48
Speaker
how many years do they actually have to dictate what they wanna do with that money before the government starts telling them what to do? Yeah, 11. 11 years. So you accumulate for, let's just say 59 and a half, and then you have 11 years from 59 and a half to, what's the magic age? 70 and a half. 70 and a half. And then now the government is gonna start requiring you to take a minimum distribution. Those are called RMDs.
00:12:18
Speaker
And they're going to start, because they haven't been taxed before, they're going to start pushing it over the ledge, as we call it, because they want to get their taxes out of that account. And so what you found is there's some of our clients who are like, what do we do now? We don't want all this money and all this income, but we have to take it or else we're going to get taxed at 50% over whatever you don't take. It's one of those things you only make it once.
00:12:42
Speaker
You only make that thing wrong. Well, and it's interesting too. I thought the kind of the other place you could go at that point you were trying to make, Phillip, is, you know, let's say everything goes right in your 40 and your 401k is at two or $3 million. It's kind of like, so what? Like you can't touch it. Yeah.
00:13:01
Speaker
you know and you can do a seventy two t distribution before you're fifty nine and a half but the government mandates that you take out even an equal payments and so the withdrawal rate ends up being like one to two percent.
00:13:16
Speaker
And so it's a very, it's still probably a lot of money if you got two or three million dollars, but still it's not what you're thinking it's gonna be. Totally. So yeah, I think it's just to start putting money in those vehicles at 18 to 25 when it's legitimately 40 years away, we don't see a lot of, I just wouldn't start there personally to build wealth.
00:13:39
Speaker
Now, and this could be case by case, and we need to probably make the whole compliance thing. We're not tax advisors. And we do work closely with each one of our clients with their tax guys to really talk through tax women, say that too, to talk through each situation. But as a whole, it seems to be what you're saying is actually right. And so here's what I would say too, to help you kind of formulate your own thoughts. There's three questions we normally ask people.
00:14:09
Speaker
And the first question is actually interesting because taxes just went down. So the first question is, are taxes going up or down? And majority would say the taxes are probably going to be going up.
00:14:22
Speaker
Just because we got a lot of debt. Okay. So that's normally yes, taxes are going up. And then would you rather be taxed on the seed or on the harvest? And from Iowa, we understand that because you plant one seed and then out comes four ears of corn and you'd rather be taxed on the one than the many. And then the last question that we ask is, is a dollar worth more today than it is tomorrow?
00:14:49
Speaker
Or, another way you can ask this is, how many candy bars can you buy with $1 today? Not one.
00:14:55
Speaker
but how many candy bars could you buy when you were little? Probably around two. It was like two. Yeah, it was like two. You can get like a candy bar and a Slurpee, you know, at 7-Eleven. I love it. Okay, we digress, but we're trying to make this a little bit more entertaining. And then, so those were trying to ham it up. Those questions would make you wonder, maybe the qualified accounts might not be what I thought they were, or the 401Ks. We'll just say that, because a lot of people will know that.
00:15:24
Speaker
So, just something to give you a little bit of an uncommon thought about the whole, I guess, norm of that. I think the last story or analogy is it hits close to home for me. And if you walk into a bank and you ask them if you, give me a loan, give me a loan of $500,000. And the banker says, yep, we'll give you that loan, sign here. You should immediately say, well, what's the interest rate? And what if he looks at you and says, hey, don't worry about it. We'll tell you in 20 years.
00:15:53
Speaker
Okay. Would you take the loan? Like you wouldn't put your name on that thing. There's no way. Not at all. It'd be crazy. Yeah. But what do we do with these 401ks when we don't know what the tax treatment's going to be on the way out and what we don't know what the growth rate's going to be? Yes. And so that's the things that like, man, you would never write your name on that line. Yet we're, we're putting this stuff in every day or every month. Um, so it's just something to pause and consider, I would say.
00:16:22
Speaker
I think too we'd caveat this with, and I think we talk about this, especially with, you know, our guest interviews, Phillip is, and we're saying this in the context because a lot of our clients and a lot of our listeners, there's something on their heart that they want to pursue. There's a passion, there's a burning desire, there's a voice, whatever you want to call it, something is happening internally that you can't shut it off anymore. And you want to
00:16:52
Speaker
you wanna make a change and you wanna pave a different path. And we've seen it time and time again, people go to make that path and a large portion of their wealth is tied up in these accounts and they don't know how to make it happen because their largest asset is illiquid in these retirement plans. And the penalties to touch that money and those different things, it's just very difficult. And so what we're saying is,
00:17:21
Speaker
you know, if you're in that spot of discontentment or like, Hey, there's something I really want to do, I wouldn't start throwing money into the stock market to fund that dream or vision. Preach it. You know, we've, we met one client that they really wanted to adopt. And so we're like, that's amazing. Like how much money do you have? They're like, well, we have $200,000 in our 401k. Okay. Yeah. Great.
00:17:47
Speaker
It doesn't help you. Yeah. And you can take a loan from that, but man, that's a scary thing. Yeah. And then we don't want to borrow money to adopt. Yeah. And then the next question was, well, how much do you have in your bank? And they kind of depleted, said, well, $2,000. Like, okay. There's a huge disconnect here. You have $200,000, you would be considered wealthy.
00:18:13
Speaker
yet you can't do even what God placed on your heart today. So that's just a thought. So, okay, we beat it up. That's kind of where we're at. We beat it up. Let's go the other way. Okay. I want to go it. I'm totally cherry picking our topic. So hang on. I want to talk about the four layers of fees on these things because that is huge when you're talking about investing.
Understanding Investment Fees
00:18:33
Speaker
Yeah, so the four layers of fees are real. You've seen some of this in the media, but we want to break it down for you. So the first layer I would say is like account maintenance fees or like record keeping fees. Because the federal government has so many restrictions on our industry and so many requirements,
00:18:57
Speaker
to send out notifications, statements, all those different things, tax filings, especially on IRAs, a lot of the brokerage firms and different things will charge like a $50 annual fee to have an IRA. So I would lump those in as like a record keeping fee or maintenance fee, if you will. So that's the first layer. The second layer of fees are trading fees. And so if you have your money with a third party money manager,
00:19:27
Speaker
there is expenses in trading. So if they're running a strategy and they're getting you in and out of stuff, that's gonna require a trading expense. And so you need to know whether you're paying that or the third party money manager is paying that. So that's the second layer. Then you have the asset management fee or the management expense of that money. And so that's the expense that's dictated for the person that's managing the account.
00:19:56
Speaker
And the FINRA is getting way more vocal on this and trying to separate this in our industry right now. So I think you're gonna see this get a lot clearer, but I think it's been ambiguous of like, how do we make money on this stuff, right? How much am I really paying? And so for us, we use a third party money manager and they actually are managing the accounts on a daily basis and they get paid and we can't, if we use them, we've got to pay them, right? They're not gonna work for free.
00:20:24
Speaker
And so that management fee to manage those accounts is, is their fee. So that's the third layer. And then the fourth later is Philip is the UNI. Yes, it is. So there's a cost to doing business.
00:20:38
Speaker
as advisors and this is part of the reason we've shifted and we're trying to shift more towards a subscription model to reduce our fees in this bucket because I mean it's four layers of fees is real and I think people want to know what am I getting for this and so
00:20:55
Speaker
That's a big part of why we're doing a subscription model now. So yeah, it's the advisor. You're paying for the advisor too to work with them and they are potentially charging you a fee as well. So those are the four basic layers of fees and if you're not using a third party money manager and let's say your money's at a mutual fund, you're paying the mutual fund manager as opposed to the third party money manager. So you're paying it really no matter where your money's at.
00:21:26
Speaker
Or if you're doing it yourself, you're pulling out that cost or if you're doing it with a robo-advisor and you're trying to go it on your own, then obviously you're reducing that cost. But you're still going to have the investment expense of what you're holding. So if you own an ETF, there's an expense ratio if you will. That's actually probably the fifth layer of fees.
00:21:49
Speaker
Yeah. And so, yeah, the ETF company is charging a fee on the pot of money. The mutual fund company is charging a fee in there. And so, yeah, it just can be super expensive. I think you're not going to get out of those fees, even if you go with a robo-advisor.
00:22:06
Speaker
Yeah, the frustrating part of, for me, is that there are always normally fees that's attached to some of these accounts. I mean, I would say they're always as fees attached to these accounts. It's when they're not displayed clearly that I get frustrated with. Because if they're not displayed clearly, it doesn't mean that you're not getting fee charged. It's you're not seeing it, right? And so that's what I think FINRA is trying to do and trying to regulate more, which I think is right.
00:22:35
Speaker
in the 401k space too. We're trying to make it clearer as to like, how much are we really paying here? So I think you're going to continue to see more clarity on that as the internet forces that and as the government forces that. And it's a good thing. So we will see fee compression, but the data suggests on average and around America, uh, the average person in a brokerage account with an advisor and you know, mutual funds or whatever, you're paying about two to 3% annually in fees on your money.
00:23:02
Speaker
Yeah. Yeah. And when you think about that two or 3% and let's say your account went up, let's say it's 2% fees and your account went up 4%, that's really a 33% of your gain that you just gave back because of fees.
00:23:18
Speaker
Yeah, because you would have had six percent. Yes, exactly. And so I think that's hard to kind of wrap your head around, but fees are real. You need to be aware of them and you need to be with advisors. I think that you need to have some clarity on what those are. It's not like you're not going to get charged. Like I'm telling you, there is a fee associated to this business for Brian and I. And for that, we should get compensated for it. But we're definitely very clear of what that is for our clients.
00:23:48
Speaker
That's good. Okay, so man, there's so many angles and areas we can go. Let's talk about, you talked about ETFs and mutual funds and individual stocks.
Investment Vehicles & Trends
00:24:00
Speaker
Let's go there just for the listeners. Yeah. I like this one.
00:24:04
Speaker
So when I grew up in my mom's brokerage firm, I started looking at stocks. I remember she gave me this booklet. This is back in 1987, the year of the flash, not the flash crash, but it was a black Monday in 87. And I had this thick booklet and it was a stock, it was like a stock booklet and it had all the stocks and their prices and the ticks. That was back when they did the fractions, you know?
00:24:32
Speaker
And so I was been looking at stocks since I was six years old. And then, you know, she was more in a Wall Street style firm where it was just stocks and bonds and brokers are on the phone selling stuff on the phone, kind of like you see in the movies. But these guys were, you know, good guys were here in the Midwest. And so it was just, yeah, it was a good firm. And so I grew up around that. And that's kind of why I resonate with the, you know, the story, right, of a stock. And why are we buying this?
00:24:55
Speaker
And I mean, it's all the storied companies. It's like ingrained in you. Like I've heard you talk about it and it's just like you go into this mode and it's well, yeah, it's in stock mode, stock mode. Yeah.
00:25:06
Speaker
And I think I was like Jim Cramer Jr. in college because I worked at her firm. And I mean, I could quote probably 200 to 300 stocks and where they were at on a given day and what they were doing. And really, I've backed way away from that. And here's why. It's the Enron. It's the WorldCom. It's the ones that go wrong that have really, I think, kind of maybe embittered me to all that.
00:25:31
Speaker
And I think for me too, I was a finance and economics major in college. And so I'm really big on trends, right? Like I think you can look at like AI, artificial intelligence, and I think semiconductors will do extremely well right now because everything is getting a chip in it, right? Like the internet of things. I mean, of course, chips and coffee makers, toasters, refrigerators, everything has a chip. So
00:25:57
Speaker
Those are trends, but then if you go in and buy the wrong semiconductor stock, you can go down 30 to 40%, while the rest of the industry is up 30 to 40%. And that just, I don't have the time as much anymore. Obviously, with the success that we've had, praise God and all that, and everything that we're called to do on a daily basis, I just can't do the research that I used to do, and that's kind of why we've hired a third party money manager for this sleeve of our business.
00:26:25
Speaker
Yeah, I think obviously you can make a lot more money in individual stocks and you've seen that in Apple or Disney or Amazon and those types of things, but you can also get it wrong. That's where I've just got frustrated with having the right thesis, having the right trend, picking the right sub-sector of the industry, but then picking the wrong stock.
00:26:45
Speaker
And so that really dovetails to me into mutual funds too because a mutual fund for the most part And again now there's more mutual funds than there are stocks if you want to think about that So there's more people telling you you should own this stock than there are stocks to buy
00:27:02
Speaker
So this is the old Peter Lynch in the 80s, invest in what you know, and we got this explosion of mutual funds. And it's the guy sitting there thinking, I think Pepsi is going to do better than Coke, and I think Delta is going to do better than United, and I think Clorox is going to do better than Colgate, that type of thing.
00:27:23
Speaker
And really what you ran into is that guy could have been a great fund manager, but nobody really ever tells you when he leaves, you know? Did that guy retire? Did that guy, you know, kind of go through a rough patch in his life and the performance suffered? You just don't know. Yeah. Just to clarify. So a mutual fund is picking individual stocks and bundling them up.
00:27:45
Speaker
and then presenting it to individuals. Okay, just one of the things. Yeah, like here's a large cap mutual fund. Here's a domestic equity mutual fund. And then you got these guys that are putting their personal twist on what they think is gonna happen and then you're paying them a fee for that. And so a lot of times you'd have funds that like again, you're picking the right trend. I wanna be in the tech fund. Well, you got a guy that has the wrong thesis and you might underperform the whole index.
00:28:14
Speaker
And so really what the data has suggested is we need to reduce fees and we need to reduce the fees. And over the long term, the majority of these mutual fund managers can't beat the index. And so then to do research on top of not only the trends or maybe the stocks to be in, well, now you got to do research on the guy trying to pick the stocks. Well, that's exhausting. Did he leave or not?
00:28:41
Speaker
And as advisors, it was exhausting. What's going on now? And so it was just a whole other layer of research that you needed to do that really, as we found out in the data, it's just not necessary. And so in that analysis of the data, we have ETFs, exchange traded funds. And it's kind of like a cheaper, less emotional, less subjective way to diversify or pick a trend or a sector. Now they have them for everything.
00:29:09
Speaker
And just mirror an index and strip out all that cost of somebody trying to put their own flavor on semiconductors. Or why am I picking this one over that one? We'll just buy all of them in the index and just get out of their own way.
00:29:25
Speaker
So, our third-party money manager leverages their investment platform majority mainly through ETFs. They do do some individual stocks and bond portfolios and they do do a few mutual fund strategies if you've held them for a super long time and
00:29:40
Speaker
and there's unique situations, but predominantly, they're using exchange traded funds, very low cost, like the lowest cost you can get, and they're trying to just strip out all of that cost, all of that subjectivity, and they're doing the research and saying, hey, I think we should be along Japan, let's just be in the Japan cheapest index, or we like semiconductors, let's be in the semiconductor index. And so, yeah, and that's kinda,
00:30:08
Speaker
the difference between them all. Instead of having individual risk of that individual company. Right. Yeah. Or, you know, and especially like an Enron's case and you've got fraud. I mean, and so we'll see how it plays out, but I think there's several stocks in the marketplace right now that are on an Enron type path. And I can't wait to see it play out because it's still, it's still prevalent. Totally. All right. So let's talk about technical versus fundamental analysis. What does that mean? So this kind of,
00:30:38
Speaker
This kind of dovetails on the previous one. I was taught and kind of grew up with the fundamental analysis, and there's kind of two schools of thought on that, so I'll break that down really quick. It's called top down or bottom up. So top down is saying, okay, we got Donald Trump, whatever you, let's just say you're pro-Trump. We got Trump, we got all these Democrats out of there, and I'm not trying to be political, I'm trying to frame an investment case, but.
00:31:04
Speaker
We've got that. We're going to get lower taxes. We've been through 17 years of sideways, huge blokes in the market. Everything's been worked out. America's ready to get back to work. I think the stock market's going to go up because of the macroeconomic things that are happening. We have low interest rates. The government's printed a ton of money.
00:31:25
Speaker
I think stocks are going to go way up. So that's the top macro. Then you go down from there. And that's where I'm saying, okay, I'm looking at trends. I think semiconductors are going to be huge because they're putting a chip in everything. So then that's kind of the middle layer, right? The industry or the sub sector.
00:31:41
Speaker
of the overall economy. Then I'm going to say, okay, I think Nvidia is going to just go nuts because they're in gaming. They make chips for gaming units. They make the chips for artificial intelligence. They make the chips for driverless automation and cars, and they make the chips for cryptocurrency miners. They're clicking on all cylinders. I really like their CEO. Boom, I'm going to buy that stock. That's top down. Bottom up is the exact opposite.
00:32:08
Speaker
I like Nvidia. I like their CEO. He's a stud. The stock's going to go crazy. Yep. The industry should go crazy because they're putting a chip in everything and that looks good. And then macro. Yep. We got Trump. We got low taxes. We got low interest rates. And so that's the reverse.
00:32:25
Speaker
So that's fundamental analysis at a very high level, and then you're getting into PE ratio. How much cash do they generate? Kind of the Warren Buffet, right? I think this is a good company, they have good management, they have really good numbers, they're undervalued. They're just fundamentally a sound company inside and out. Technical analysis is saying, man, the heck with all of that, that's exhausting.
00:32:50
Speaker
people are people and have been for 10,000 years and the decisions we make are inherently the same. And we repeat the mistakes that we make and we repeat our emotions because we're emotional creatures. And so a stock chart is just an expression of human behavior and emotion. And over the long term, those charts are gonna perform and behave similarly through different trends.
00:33:19
Speaker
And by analyzing the chart, I can over predict or with a high probability determine what I think is going to happen with the stock regardless of who the CEO is, how much money they make, or whatever. I'm going to try to interpret the future of the stock price based on the technical analysis of its chart, the volume of the people buying that stock, and those different indicators that have been created to track that stuff.
00:33:48
Speaker
So that's kind of the the technical versus the fundamental analysis I think that's good to go into just because it gives you another framework to work through Yeah, so let's let's add one thing. I think you can yeah, I'm gonna let okay cool. So So I grew up as a fundamental analysis guy and then when in 0708 I got really into I
00:34:10
Speaker
Yeah, Ron Paul. And I got really into the fact that I thought we were going to have an economic crash based on the economic training that I got in college. And so that's really when I felt like most people just didn't see it coming. But I did, luckily, and was able to make some changes to really prevent that from being worse than it could have been for our family. But in that,
00:34:35
Speaker
you know, getting back into the market when you see that type of crash was difficult. And that's really why we've approached the YouTube channel the way we have and looking more at technical indicators and technical data of the market to have both. So I think we have a great view of the macro.
00:34:52
Speaker
But we were missing that technical balance. And so that's the purpose of the YouTube channel is to kind of blend the macro with the technical and really see where we are and what is the data showing us because sometimes the headlines in the short term can be very polarizing and fearful. And we saw that with the election and we, we continue to see that in the media and I think that will get worse. And so the technical helps us drown out some of that stuff. Totally. That's very uncommon, Brian, that you do that. Thank you.
00:35:23
Speaker
Okay, so there's a lot of, I think, questions between savings versus investing versus speculating, at least with our clients when we first meet them and first talk to them. So what's the difference between savings? Do you save it? Do you invest it? Is it speculative investment? So let's walk through that a little bit for the listeners.
Investment Strategies & Speculation
00:35:44
Speaker
Yeah. So I think this is a huge topic too that could probably just devote its own show too. But I think savings is kind of lost in the sense because of the low interest rates. And we have farming clients and we have older clients and
00:36:01
Speaker
they talk about 50 years of leaving money in the bank and that money on average was earning five to six percent every year. Could you imagine? I can imagine. It would be amazing. I actually remember my brokerage account at my mom's firm in 1999 when I started working there, I was like 17 and my money market on my brokerage account was paying five and a half percent.
00:36:23
Speaker
Unbelievable think about that like liquid cash paying five and a half percent But anyways, I think savings in the term of like, you know what we uh, you know think about it as is leaving money at the bank and earning a rate of interest and that's actually the first layer residual income as part of our seven sources Is getting income on the money you're just saving like your emergency fund that type of thing and I think it's becoming kind of a lost start although we do have a lot of clients that leave a lot of money in the bank and that's why
00:36:52
Speaker
They're coming to us saying, man, I don't wanna do this anymore. How long is this gonna go on? And we have had some interest rates go up and I think you'll see interest rates go up again here. The new Fed chairman reports I think next month. And I think you'll see interest rates go up a little bit. But yeah, I think that's that lost art and it's pushed a lot of money into the market. And so then let's move into that, investing, right? So investing is, I don't need this money for at least, I think the book answer is five years. I would say probably three to five years.
00:37:21
Speaker
I don't need this money for three to five years. I got money in the bank or I've got money in a cash value life insurance policy that's stable. I want to take more risk and I want to do something more aggressive. Perfect. That's investing. I'm going to put money in. I'm not going to touch it. I understand it can go up and down and I'm going to invest for the long-term. That's investing. I'm committed to this. Speculating I think is the other one that most people, I think it's kind of like in the vein of savings.
00:37:49
Speaker
because I think savings is a lost start, and I think a lot of people that are speculating think they're investing, but they're actually speculating. And speculating in something is really more of a short-term focus, you're in, you're out, you really don't understand what you're doing. And it's interesting too, with a lot of our interviews, Phillip, I feel like a lot of people were speculating when they first got started, but they were speculating more with like,
00:38:16
Speaker
rental properties or trying to start a business. I'm passionate about something, but I don't know how to put train tracks on this thing. That's a good point. Speculating in regards to the markets, and I would even lump in cryptocurrency with this, because I do think cryptocurrency falls in this bucket if you're going to do it.
00:38:35
Speaker
But speculating is basically trying to buy and sell more frequently things that you truly don't understand. And you don't really have a system to derive profits from it over time. You're really just guessing, trading on momentum, trading on emotion, trading on headlines. And there's real no rhyme or reason behind what you're doing other than you have money sitting there that you feel like you've got to do something with.
00:38:59
Speaker
Yeah, and it's funny because would you mentioned our other people that we've talked to and our clients, it does seem like they are speculating a little bit, but they're speculating on something that they're passionate about normally, or they're speculating on something that
00:39:14
Speaker
they're going to learn something from, whether they're not their passion or not. And that's why it's scary when you put money in something that you don't understand and you have no control of what you do, you do or you don't know. In this bucket, in this kind of investing type of talking about this kind of money, man, when it goes down, what did you really learn? Nothing. Yeah. But like... I have the... Go ahead. Can I just share a story real quick on this?
00:39:40
Speaker
So I had this conversation last night with a guy and he initially got into an oil and gas deal, just put in all amount of money. And it went really well. It went really well. And he's like, man, this is cool. I got a tax deduction, huge upfront, I'm getting paid. They've sent me a check every month. Oil's going up. I'm going to put in more money. And that investment goes well.
00:40:05
Speaker
And he's like, man, I got a tax deduction. Oil's going up. It's at an all time high. I'm getting paid every month. I'm going to put a ton of money in. Run, ton of money in.
00:40:16
Speaker
Boom. Did get the tax deduction. That was the only benefit. Oil plummets, no cash flow. The money's gone. The company went out of business. And so in that speculating, he didn't really know anything about oil and gas. And I'm not putting that on that person because we've all done it. I've done it for sure. We've all been in that. And I think that lends credibility to the technical analysis, by the way.
00:40:42
Speaker
But isn't that the story we all have on some level when it comes to investing? Like, Oh, that felt good. Oh, that felt good. I'm going to put in a little more. Yeah. Oh, that felt great. And then where did it all go? So, you know, that's funny how you walk through that savings versus investing versus speculating, because it does seem like it goes in that order to me. Like that's normal. That's a normal order. And it's your saving. And especially nowadays, you just don't feel like you're getting any interest rate at all.
00:41:10
Speaker
So then you're like, I better invest. And then you're like, OK. And then you're like, let's go. Let's do it. Oh, man. OK, so nothing can go wrong. Yeah. What are we doing here? So you mentioned a little bit about crypto and about speculating. Is there anything else you love crypto? I just want to give you a little platform. If you want to talk about it, you can go ahead, buddy.
00:41:35
Speaker
I do. I do love crypto. It's probably like if wall street in Vegas had a baby. That's what cryptocurrency is. That's a great, I think that's like the perfect analogy. I do think it's the future in terms of technology, the blockchain. I think you're going to just see massive amounts of innovation. I think when you actually think about the blockchain and cryptocurrency in relation to money,
00:41:59
Speaker
Again, the government's trying to paint it as an investment.
The Future of Cryptocurrency
00:42:02
Speaker
We're talking about it as an investment here because that's the way everybody's viewing it. But as money, it's actually a more accountable and a more
00:42:12
Speaker
I think long-term sustainable solution for money versus our current central banking system. That's why I'm excited about it because I think the current system gives an unfair advantage to the people that get the money first, AKA the banks and AKA Wall Street and AKA the politicians who are paid by the bankers. And I'm a little bitter and jaded in that, but I do think cryptocurrency is the future. I think blockchain is gonna blow
00:42:40
Speaker
people's minds what we're going to be able to do in 20 years just like now everybody couldn't imagine their life without their cell phone and we're addicted to it truthfully and I think the blockchain is that and cryptocurrency will be that but yeah I think a lot of people are speculating right now just as they did in the dot-com era but I do think there's a lot of money to be made if you are patient
00:43:03
Speaker
and you have a strategy and you don't over invest based on where you're at and you do the research and that's kind of the way I'm approaching it personally and I've enjoyed being able to talk about it with our clients and I think make that analogy back to like hey remember that big huge first computer you got? You didn't really know what it did and you didn't know if like why am I buying this?
00:43:25
Speaker
But you bought it and we all have that dead hardware in our basements that probably needs to be taken to a landfill and you know we've spent tens of thousands of dollars on having access to the internet and I think that's been a progression right and so I think dip that toe in the water with a thousand dollars or something you know very small relative to your overall holdings is kind of like buying that first computer and so that's kind of how we're approaching it but
00:43:54
Speaker
Yeah, so there's a lot of topics here that we could keep going into. I think at this point, I would just say if you have any questions at all, reach out to us. We can walk through those. Lastly, I just want to point out too, we are more advocates for our younger clients to start a non-qualified, we call it an engine account that would kick off income, kind of like a
00:44:16
Speaker
rental property and get it back into the flow of your cash flow to try to help you solve for tomorrow instead of solve for the last day
Conclusion & Call to Action
00:44:26
Speaker
of your life. And that's what more of a qualified account would do. So Brian, thanks for walking through that with everybody. I thought, I hope you guys thought it was a little bit more fun and enjoyable. Trust me, it could have gotten a lot worse. So I know. Thank you everyone.
00:44:39
Speaker
Yeah, I appreciate everyone for listening. Any questions you guys have, we'd love to answer those for you. If you would do us a huge favor, and I mean this, subscribe to this show. Give us a, just rate us. And that sounds super lame and maybe, I don't know, selfish, but that really helps us. Go ahead. Yeah, it helps us with our ranking on iTunes and Stitcher and Google and
00:45:05
Speaker
you know, getting more eyeballs on the podcast and more ears, if you will. And I think just a plug too, like if you do want to understand more about technical analysis, our YouTube, uh, on Commonwealth partners, YouTube, uh, channel, we're trying to dive into that more and explain, uh, more of what the data is suggesting the market is saying.
00:45:23
Speaker
And we've helped several people who are like, man, I really want to start understanding trading. I really want to start understanding options. I hear all this stuff about it. And I think it is a viable path out of maybe your day job. And we know several people that trade their own money and wealth as their day job and they have retired from corporate America in that. And I think that's something that we can help people put a path on. You ultimately got to do the work and make the trades and
00:45:52
Speaker
and do the research but it is a viable path and I think it's gonna be more of a viable path with and because of cryptocurrency and the expansion of that market and I think if you are having those types of feelings, please reach out to us because there is an avenue for that.
00:46:08
Speaker
And Brian's done a great job and being very religious on doing the two weeks. Every two weeks, he puts out that YouTube. So I really appreciate that. So again, guys, you guys been watching and friends, I should say, I say guys a lot. I should just throw that out. You got to stop saying guys. There's a lot of women. There is.
00:46:25
Speaker
Shout out to all the wonderful women out there listening to the podcast. Friends, thank you for listening to the Uncommon Life Project. This is Philip and your host, Brian Dewhurst, don't you know? And guys, we'd love to keep listening and keep tuning in. Have a great day. Thanks, everybody.
00:46:46
Speaker
That's all for this episode of the Uncommon Life Project, 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.