Transcript
Speaker: Hi everyone, welcome to the Future of Finance podcast where we break down investment strategies to help you live a better financial future. I'm your host, Marissa Wood, financial advisor and one of the owners of Union Financial Services. And today my business partner, Lisa Green, and I are breaking down two viral takes from Dave Ramsey. And I'll be honest, one of them might actually cost you millions. Before we get started, I'd ask you to please subscribe to our channel, whether you're watching on YouTube or your favorite podcasting app. It really does help us.
Speaker: And Lisa, I want to welcome you back to the podcast. One of the reasons our business is so successful is because we have two different perspectives when we're working with clients. And we don't always agree on everything 100%. It's true. Which ends up helping the client. So it's going to be interesting to see our difference in opinions on today's clips.
Speaker: It's great to be here. Thank you. All right, so let's start by watching one of the most common yet controversial pieces of financial advice on the internet right now. I have listened the audible book, Money Makeover. 95% of the things in there I 100% agree with, but there's one thing that you guys preach that my wife agrees with and I don't. That is paying off your mortgage. So we have $327,478.50 now
Speaker: with a three point six two five interest rate And I have been very adamantly against paying that off for the last several years because if we invest our money very conservatively, very safely, high yield savings account, money market account, it's been at four and a half to 5% for the last several years.
Speaker: Why would I pay off my mortgage when I can make more having it in conservative, basically guaranteed money? Do you have $327,000 sitting in that savings account? It's not a savings. So we've got in money market account right now, we have enough to pay off our house. That's what I'm saying. So you have the money to pay it off. Oh, yes, sir. But you like to see it grow at 3.8%, which by the way, you owe taxes on all the money you're making from that. You understand that? So it's not apples apples already. The interest can be written written off taxes.
Speaker: The mortgage interest is what you're saying, because you guys itemize every year? Correct. So I can give you the logical math answer, and that's where you're going to want to spar, but it's so far beyond that. And what you're... So that's interesting. um And we all know that Dave Ramsey preaches no debt no debt, even if it's really, really low interest bearing debt. And that's where I'm going to disagree. I'm going to disagree with this piece of advice to pay off that mortgage at such a low, what was it, 3.6%. 3.2% interest rate. That's like historically low. It is. And and that's the interesting thing. The past, you know say, well, we know back 2020, 2023, those rates, even maybe up to those mortgage rates were so low.
Speaker: lowest, I've never seen rates that low. They were so low that it would be ridiculous to pay off that kind of a mortgage, in my opinion. I don't understand. i don't understand why you would. I mean, I i know that the mortgage, and people's mortgages are their biggest debt that they're ever going to have, usually.
Speaker: And to have that weight that people feel like it's a weight on their shoulders carrying around that mortgage because it's you know half a million dollars or whatever it may be, But at a low interest rate of 3%, 3.5%, that's a gift.
Speaker: And I don't agree with paying off that type of a mortgage. Yeah, you have to use the power of leverage, which I know the caller in that video was referencing that he could make more than that interest rate even in his money market or high-yield savings account, let alone, i mean, we would suggest probably an annuity or or a low-risk brokerage account.
Speaker: where you can earn even more on average. Yes. And the great thing with the annuity is that it's tax deferred. Right. And so Dave Ramsey's host there was saying, well, you have to pay tax on that interest every year. necessarily. Not necessarily. it depends where it's invested. That's so true.
Speaker: um And so it really is so personal. It depends on why they would want to pay off that mortgage. What will you do with a paid off house? Right. Exactly. It can't feed your family, can it?
Speaker: No. No. so So now on the flip side of that, I feel as though for people that are nearing retirement or in retirement,
Speaker: I feel as though they should not have a mortgage. You know, if you buy a house and you're, say, 30 years old and you have a 30-year mortgage, I would hope that at the end of those 30 years, if not at the end of 20 years, you pay off that mortgage. You know, and I'm talking about 6.5%, 7%, 8% mortgages because when you retire You don't have that paycheck coming in, that X amount of percentage of that goes to towards your mortgage, you know. So that is having a mortgage in retirement, to me, is not a good thing.
Speaker: Yeah, i mean, I know you don't personally have one. No. and my first mortgage years ago was at 12.5%. twelve and a half percent Well, at that point you get an amortization schedule, and you pay off extra principal. There's so many great things that you can do to help you lessen the length of the mortgage, but not pay it off if it doesn't make sense. And a 3.5% loan doesn't make sense to pay it off.
Speaker: No, and it's it's even beneficial to talk about why celebrities would get a mortgage. And we all know most celebrities have the net worth to purchase a home outright in cash. So why in the world, we did reference this in a previous episode where we sat down with a mortgage advisor, why in the world would people like Meghan Markle and Prince Harry get a mortgage on their home. Surely they could pay it in cash. um But it's because of the power of leverage. If you can earn more by investing than your debt percentages, then you're making a profit, especially if it's long term. I mean, I can use huge numbers and then, you know, divide it in half, divide it by 10 for the average person in your head. But
Speaker: They purchased a $14 million dollars home. They took a $9 million dollars mortgage out. And their interest rate was in and around 6%, let's say. And that's not as low as the one in the video. But let's say if, you know, it was around 6%, well, now they could invest that $9 million. dollars And if they invested in the S&P 500 and earn an average of, let's say, 8% year,
Speaker: They're making a little bit more than what their payment is. Over the course of 30 years, you know what their $9 million dollars would have grown to? tell me. $83 million. Wow.
Speaker: And yes, of course, they've paid the mortgage interest about $10 million over those years. They're net profiting over $73 million by taking out a mortgage and investing it.
Speaker: The numbers don't lie. now You know, it's interesting in this industry that we're in, numbers are numbers. You know, math is is the true math. And if you can...
Speaker: figure that out and we have the resources to figure out what it will cost in the long run when you buy a home you can see that and number you know your five hundred thousand dollar house is probably going to cost you two and a half million by the time you're finished well let's let's do the math and let's see what makes sense with that rate of of your mortgage and what you can potentially earn yeah so Now, if you're not going to invest it, if it's going to sit in the bank or your checking account, different story. Then, yeah, might as well pay off the mortgage because your money is not earning for you. Right. Well, that's not our client. No. That's where we come in and have a conversation. um and so for anyone listening to this, too, and you have all your money sitting in the checking account, let's have a conversation. We have so many amazing options. and We have so many amazing options.
Speaker: clients that tell us after a year or so the amount that they have in their checking account. And we ask why. You know, well people are a little afraid to, you know, part with that. Well, we're not saying to tie up your funds. We can invest it in a liquid account. Yeah. Yeah. So it really is situational. I mean, i do see where you're coming from if you're pre-retiree or retiree. Get rid of that mortgage. If you can. Yeah. I mean, you know, there there are also a lot of people that that do that downsizing when they retire and they'll sell their home, get all that equity and they'll rent. I see nothing wrong with that. Mm-hmm.
Speaker: You know some people have the mindset that they always want to own that home. And and I understand that. But if you have had a mortgage for 30 years, there's no reason that it's not paid off.
Speaker: I don't understand why it wouldn't be paid off. Second mortgages, home equity lines. Yeah, and then there's that home equity. Yeah. Yeah. yeah But um well, then you don't retire. OK. Retirement is not an age. It's a number. And if you have ah a large mortgage still at retirement age, then you're going to keep on working.
Speaker: Yeah, I mean, I know off the top of my head, I can think of a few clients that we've met with in the last few years, and they wanted to pay off their mortgage, but their assets didn't allow it.
Speaker: They had, let's say, you know, $100,000 saved for retirement, and... They had $70,000 left on their mortgage. They wanted to use their retirement savings to pay off their home. Well, in that case, it doesn't make sense because you can't pay your bills and travel and go out to eat with your home.
Speaker: You need actual money to do that. Equity doesn't buy you things. Yeah. Right. It just is there for you when you eventually sell that property. yeah and And that's not a bad thing. But there's a lot there's a lot of resources. And we have some great contacts with mortgage people and, and you know, different types of of professionals that can help along the way. ah But to blatantly randomly say, just pay off that mortgage. If you have that amount in your checking account, then pay it off.
Speaker: I don't think that's very smart. I agree. Yeah. So if you're listening to this and you're not sure if you should pay off your mortgage early and you want a second opinion, you want us to crunch the numbers for you, by all means, all you have to do is go to our website, union-financial.com, and click schedule a meeting where you can book a call to have a conversation with Lisa or i and we can run the numbers for you to see if it makes sense to pay off that mortgage early or to invest that money and which tools to use it to invest.
Speaker: Great. um All right, so let's shift gears a bit away from the real estate conversation and talk about something else that can create a lot of confusion and controversy, and that would be the stock market.
Speaker: Okay. So let's watch a video from Dave Ramsey talking about Warren Buffett's strategy. Warren Buffett most famously said, you know, someone came up to him during the 2008 when the stock market went way down. They said, Mr. Buffett, you know, you lost $10 million dollars today on your portfolio. He said, I didn't lose anything.
Speaker: didn't sell it. It went down in value, but didn't sell it. It'll come back up. And then you'll say, Mr. Buffett, you made money. No, it just went up and down. Until I sell it, I haven't locked in the losses or the gains. You got keep that in mind, folks. It's on paper until then, and it ain't green paper.
Speaker: That's great. That is so true. And it's so important to remember during these volatile times in the stock market, your value might go up and down.
Speaker: But until we actually make a sale, it's not a true loss or a true gain. That's right. I mean, Warren Buffett is usually the one that says. Hold it.
Speaker: and Just sit tight. And he's the one to take advice from, in my opinion. Yeah, he's done a pretty good job of it over his life. You know, and I truly believe that stocks should be held for at least five to 10 years. I'm not personally a day trader. I know some people are. That's not our investment philosophy. Buying and holding stocks for at least a year, five years, 10 years usually does make sense because then you're not as concerned with the daily volatility of them.
Speaker: Right. But 90% of the people that i speak to hold on to their stocks. They have this emotional attachment. You know, I have Coca-Cola. I've held this Coca-Cola stock. You know, I bought it at a dollar and now it's $1,000 a share.
Speaker: Or Apple. there's There's the real emotional attachment. People that were bright enough and and innovative enough and thoughtful enough to buy that Apple stock years ago.
Speaker: Amazon, same thing. But eventually, eventually, let's not hold. If you need the cash or if you want to spend that cash, give yourself a pat on the back that you did a great job. Your stock price quadrupled or tenfold, whatever that number may be.
Speaker: But what are you gonna hold onto it for? What happens, Marissa, when people hold onto those stocks forever? Well, eventually they pass away and it gets left to their heirs. And what do the heirs do? Sell it immediately. Exactly. They do not have the emotional ties. They didn't pick the stock 50 years ago. They will sell the stock immediately. um and Not think twice about it. So, you know, could it have been to your benefit to make that sale a little bit out of time when you're retired and use that money to enjoy your life? Take your kids on a trip, spoil those grandchildren, do it while you're actually alive to see them enjoy that money? Probably. Mm-hmm.
Speaker: But yeah, we do see that all the time. People do not want to sell their stocks. So on one hand, we're saying, yes, you should hold it for a period of time and not be too concerned with the daily volatility. But at some point, we need to start liquidating stocks a little at a time to enjoy the true cash value of them. Right. And of course, if you don't need the money,
Speaker: and you and your goal is to leave it to your heirs, then that's great. But know in advance that as soon as you pass away and those heirs get those stocks, yeah they're selling them. yeah Yeah. Stocks are great to inherit. I mean, so if if your play is legacy, then by all means, leave your children and grandchildren stocks. They get the stepped-up cost basis, and it is beautiful for them. So just I i know we know what a stepped-up cost basis is. so So your cost basis is what you purchase your stock at. So let's say you buy Apple stock at $10 a share back in the day. And when you want to sell it, it's at $100 a share.
Speaker: Well, now you've had $90 in profit, which is going to be taxable to you at a capital gains tax rate. um When you pass away, Their cost basis is the value on your death. So it is a higher value, which will decrease their taxable amount. Right. So so for inheritance, if that's the goal of that person, then it is a great move. Okay. Hold on to those stocks and give them to your children, your grandchildren, because the tax advantage is in their side. Absolutely. I mean, besides the emotional ties to stocks, what would you say the other reason people don't want to sell their stocks is?
Speaker: Well, the capital gains is ah is a problem. So they're worried about paying the tax. They're worried about paying the tax. and And also, I feel as though people never really know when to pull the trigger on stocks. And it is a could be a frightening game. you know, oh, oh my so my stock quadrupled. Let me sell it now. And then a year from now, the stock split. And now now all of a sudden, it's like I could have made so much more money. There's that buyer's remorse, that seller's remorse. So, you know, the stock market, stocks in general, I think,
Speaker: are a challenging game. it's it's ah It's not anything that I ever dove into, but I do hear people, I do see people that have, I mean.
Speaker: Yeah, we've always believed in diversification for our own money and for our clients' money. not having everything in stocks, having a total diversified portfolio, using annuities, ETFs, all kinds of different vehicles so that we're not only heavy in stocks. But um you know if you are concerned about that capital gains rate when you do want to pull the trigger and liquidate some stocks, I want to remind everyone that capital gains tax rates are a lot lower than regular income tax rates. For someone that a single filer that's making less than $50,000 or a household that's making less than $100,000, your capital gains tax rate is actually zero.
Speaker: If you've owned that stock for longer than a year, you will pay 0% on the profit of it. And then, you know, the next income bracket, it's about 15%. It's lower than your regular income tax. Yeah, people aren't aware of that. So so they need to speak to a professional. you know if they're If they are invested in the stock market in stocks, I would hope that they had a financial professional working with them. And they need to explore that area. you know What happens if I sell this? what you know and then And then the accountant usually gets involved. But you know it's not really what's right or wrong. It's what aligns with people's goals at the time. That's true. You know, their life goals, their, once again, we can talk about if they wanted to spend that money while they're alive.
Speaker: and enjoy all the great decisions they made along the way, then that's that's perfect. If they want to leave those stocks to their grandchildren, children, family members, friends, whatever, favorite charity, you know um then that's great too. so So it's not what's right or wrong, but you did say buy and hold for a certain period of time. be Not forever. Yeah, but not forever. there Buy and hold, but not forever. There it is. um Yeah, I mean, what's interesting about the two clips we listened to today is that on one hand, Dave Ramsey is telling everyone to eliminate risk by paying off their mortgage and having no debt.
Speaker: But then he also references and praises Warren Buffett. for investing and taking risks. taking risks And so you know it's different pieces of advice, and neither one is wrong, but it is situational. They're just built for different people and maybe for the same people at different points in life even. That probably is the point where for different points in life because what happens in your early years, your 20s, your 30s, your what your mindset is at that point is totally different than when you are in retirement. And it should be.
Speaker: And if it isn't, you know if you're still investing the same way you were in your 20s and 30s and you're in your 60s, let's have a conversation. That's a great point. Yeah. Strategy has to change over time. and And that's one of the benefits that our clients receive because we are in two different generations, two different mindsets. We can work with a client through all different life stages and make those adjustments over time. So yeah, if you're listening to this and you're thinking, well, I don't know, I just have my 401k and my stock portfolio and i haven't even reviewed it in years.
Speaker: Well, let's have that conversation. Right. Just because it was doing well for all those years doesn't mean it's going to serve you well in the future because life changes, your goals change, your situation changes. Maybe you've paid off that mortgage. Yeah, absolutely. So if you have specific questions that you would like to ask us or you'd like to schedule a review of your plan, all you have to do is go to our website, union-financial, and click schedule a meeting where you can book a Zoom call, in-person meeting, or phone call to get your questions answered. Lisa, thank you for adding your perspective today. It's always great to be here. Thank you.
Speaker: Conversations like this, I think, are what help people stop just scrolling and start taking action. and listening, right. Mm-hmm. And if you enjoyed this episode, make sure you're subscribed and share it with friends or family. And if this is something you enjoyed, we actually have a part one reacting to other viral investing tips. So make sure to check that one out. We'll have it in the description below.
Speaker: Thank you all for tuning in to another episode of the Future of Finance podcast. I'm your host, Marissa Wood. We look forward to helping you live a better financial future.
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