Announcer: 00:00 You’re tuned in to the Investing for Beginners podcast. Finally, step by step premium investment guidance for beginners led by Andrew Sather and Dave Ahern, to decode industry jargon, silence confusion and help you overcome emotions by looking at the numbers. Your path to financial freedom starts now.
Dave: 00:36 All right folks, we’ll welcome to the Investing for Beginners podcast. This is episode 111, Tonight Andrew and I are going to talk about some listeners, questions that we got. Then we’re going to focus a little bit on investing in our later years, i.e., our 50s or early sixties that kind of timeframe. We’ll talk a little bit about some thoughts we have on that related to some of the questions that we got recently about this particular subject. So I’m going to go ahead and start and read the first question. The first question is, Hi Andrew, my question is investing in your fifties I’m in the middle of a divorce of 31 years. We have accumulated a lot of wealth. So my question is, what would be the wisest strategy? I will have substantial alimony. Have worked outside the home for 29 years. So assuming I won’t need all the equalization payment, where would you suggest I start? I feel like I’ve lost much of the compounding times. So now what? I’m 58 and healthy to hope to see my eighties. I’d be thrilled to hear from you directly or cover the topic in an email for the broader crowd to work. I can’t be the only one in this situation. Thanks.
Dave: 01:42 When though when you’re not, so as somebody who is in your age range, I’m 52, so I’m the older one or the crowd here between Andrew and I and some would maybe sometimes I might be the wiser one, but I am not so sure about that always. , so I guess, I guess the first thing is I, my condolences about the divorce. I’m sure that could not be, easy to go through and I’m sure you have a bazillion questions going on. So as someone who’s gone through a divorce myself, I, I feel for ESL, it’s not an easy situation to go through.
Dave: 02:14 So I guess here’s how Iowa tackle this, and this is my thoughts. , I’m going to relay a kind of a personal thing here too. I just went through a very tough situation with my father and, he wanted to cardiac arrest last week, and he’s okay now, but it was a scary touchy situation, and he’s 81, or I’m sorry, 82 now. So things were a little bit touch and go, but he’s okay. But I guess the point of me mentioning that is that my dad has been retired now since his early sixties and he’s lived to be 82 and hopefully will live a lot longer. And I’m 52, and I hope to live to at least my mid-eighties to nineties. And then, one of the things that I know I’ve mentioned in the past is that we’re all long, we’re healthier, and we’re aging better than we used to.
Dave: 03:04 And our lives are easier than they used to be. So we are aging well, and we’re weaving longer lives. So the generally accepted principle or theory of, retiring at an age and then you live five 10 15 years after you retire before you pass changing. And so I guess our thoughts on how we invest and what our goals are with that are changing as well. And so for someone like Lynn who is 58 and hopes to see her eighties which I’m sure she will and probably Logar, you really could have another 25 to 30 years of, life before we pass. And you have to think about I have to have income for all that period and without knowing all the ins and outs of her particular situation, you’re thinking about investing in the principals I feel like are still going to be the same as you would if you are closer to retirement.
Dave: 04:07 You still have to look at income. You still have to look at trying to create wealth for yourself or income for yourself as you go farther into life. Because we’re still going to have things to pay for, like mortgages or rents or car payments or insurance or health insurance, all those things are still going to be in play even though we’re not technically quote-unquote working. All those still things are; still, we have to pay for them, and how are we going to do that? And if we don’t have income, then things are going to be much, much tougher. And, my parents are in a situation where they didn’t have a lot of wealth, and they’re living basically off of social security and, the state. And that’s a hard place for them to be in. It’s our place for us to be as, as the kids of my parents.
Dave: 04:53 And so thinking about that, is that a situation you want to be in? And so I guess when you’re thinking about where do I start, how do I do this? , is my compounding time less than it is? , there’s no easy way to say it. There it is. It just is. It is what it is. And, we all wish we had started earlier, and we didn’t know for whatever reason, and there’s no reason to be negative and beat ourselves down because of that. The what we need to do is figure out what our plan is and what we’re comfortable with and then start working towards that goal. And for me, investing in stocks is something that I’m comfortable with. Now, does that mean I’m going to go out and buy every cannabis stock out there? Probably not because that’s too much risk for me personally.
Dave: 05:42 But if that’s not if that doesn’t scare you off, then hey, knock yourself out. But that’s not my style, and that’s not what I preach, and that’s not what I want to teach people. , I want to teach people to follow the value of investing credo because I feel like that’s the best way to go. And Andrew and I have talked a lot about dividends, and Andrew is the drip king. And so that’s his focus, and it’s becoming mine as well. And I see more and more of the wisdom of what he’s teaching and talking to people about because it’s the wise way to go. And even at 58 investing in companies that are going to pay you something for your investment besides just the natural growth of the company and having those dividends and accumulating those and having those contribute to your ongoing wealth.
Dave: 06:33 Someday those dividends could be helping pay your health insurance or your life insurance or a car payment or whatever may be that you’re going to need money for. Because regardless of whatever situation we are in, we’re all going to need money at every stage of our lives until the day that we die. And yes, we can’t take it with us, and we’re all, we’re all, none of us are getting out of here alive. We’re all going to die. It’s just a fact of life. But it doesn’t mean that we can’t invest until the day that we die to help ourselves as well as any benefactors that we may have, whether it’s our kids, our grandkids, or a charity that you want to, you want to contribute to. Any of those kinds of things can all be worthwhile. Things to continue to invest in for as we go on with our, with our lives.
Dave: 07:23 Because if you look online and look at the studies like I said before, we are willing longer, we’re living farther into our, into our eighties and nineties that we were even ten years ago. And it just keeps increasing because of the quality of the healthcare and the quality of the food that we eat and are just our general lives that we live allow us to live longer. And so investing is, it’s never too late to start. It’s never too late to start to work towards what it is you want to do. And if investing is something that you think is going to be beneficial to you, that it’s not too late to start and it’s not too late to work on compounding because even if you only have ten years to compound, that’s still ten years. You can use the compound, and it will help you, and a little of something is better than nothing.
Dave: 08:09 And, I don’t think that looking at it as I don’t have enough time, so I’m not even going to start. I, I don’t agree with that, that viewpoint. And I think you can do it. I think when that you could do this and that there is a place for you to start. And, looking at what Andrew and I are talking about is certainly a great place to start if you’re not comfortable with that. There’s a lot of other options out there to look at, but I think the value of investing and looking at dividend stocks is the greatest way to go. And if you’re not comfortable with that, there’s also investing in just general broad markets like ETFs, a, we have an episode with Tobias Carlisle that’s going to come up where he’s going to talk about that as well. And those are all great options for you to look at. And these are all things that can help you and it’s just; it’s not too late to start.
Andrew: 09:01, Yeah. To that point. Um, though that was all fantastic advice. , when we talk, obviously I like to talk about compounding for 40 years because the numbers can blow up and it’s very inspiring by understanding not everybody has that long of a runway to be able to let their money compound. But as Dave said, just because it’s not for the years, say you’re, you have 20 years or even ten years, right? Len talks about being 58 and hoping to see her eighties. So that’s at least 20 years. Um, I like to look at the numbers and, and do some like, hypothetical examples to get a good idea on what you can expect. So let’s say you had $10,000, and you invested it for ten years, and you’ve got the average market return of 10% a year, um, after those ten years, you’re a 10,000 would become 25,000.
Andrew: 10:01 So that’s a 2.5-year doubling plus a little bit. If you expand that, which I’m, I’m just using a simple compound interest calculator online. And if you make that into 20 years instead of 10, well now you’re getting even more of the compounding and that it starts to mushroom. So that 10,000 would become 67,000. So a six x 6.7 x on your money. So even those shorter periods by investing in stocks and getting just the average return of stocks, you can make you, your wealth grow. And when it comes to, what’s the wisest strategy? That’s $1 million questions, but it comes down to so many different factors. And I guess what’s tough about trying to formulate a retirement plan if you will, or any investing plan as it’s, it’s so individualized depending on some of these personal circumstances.
Andrew: 11:04 So kind of to Dave’s points, like do you have kids you’re trying to leave money to? Do you have a divorce you’re going through like, like, this situation here? She says she’s going to have alimony, but, how long is that going to run towards? Is it lifetime alimony? Is it alimony of 10 years? And, how much of that wealth that’s been accumulated, what is that? What does that dollar amount, how does it relate to the lifestyle you’re trying to lead a lifestyle you’re trying to live. And so there are so many different factors, and it makes the decision-making process different. And then you get into the eye. The idea of everybody has a different risk tolerance. And it’s how, how comfortable am I with seeing my portfolio go up or go up and down? Or how comfortable am I with taking the time to learn about the intricacies of investing and personal finance and the stock market?
Andrew: 12:08 And how much do I want to dig into that? So I guess by asking the simple question, like what, what is the wisest strategy? You start to unbox Pandora’s box, and now there are a million other questions that you can go with. The one thing that I can think of that pops in my mind is to try to take it one step at a time and understand that we’re not even, even within this episode, we probably won’t have the perfect answer for Lynn or anybody who’s in a situation like that. And so it’s just, I guess understanding that if we’re talking about the rest of your life and needing money for the rest of your life, that it’s something that’s going to be if you’re going to work so hard for that money. Why not also work hard to educate yourself and then find that personal answer for yourself. As you start to learn more about really what, what kind of possibilities can you expect, and what kind of a situation do your finances and your expenses kind of puts you in.
Andrew: 13:19 I always talk about the examples of using the compound interest calculator just because to me, I’m, I’m a number, I’m a data driven guy. I think it’s the easiest way to plan for me is to use one of those. And then you can throw in different return numbers and different timeframes and try to make some estimation on where you’re going to be in the future. So you can, you can go on Google, and you can look what’s been the average and be careful when you’re doing this obviously, but always look for a very, very long period. Nothing’s ever going to be perfect. And, and this is just for estimation by estimation and can be good for planning purposes. So it’s like, okay, what is the average return for stocks over the very, very, very long term with about for bonds. And what about for whatever else some I’m considering, right?
Andrew: 14:13 Even if you were to put like let’s say 2% an ally savings account, you can use a compound interest calculator and put 2% and see, okay, if I put this much money into a savings account every month, and it’s going to compound that 2% how much am I going to have in 10 years? And that helps, at least for me, it gives me clarity on, on the store the things that, so I understand what’s reasonable and what’s not. And then as you start to think about the future, it’s like, okay, well I’m one, I’m in my eighties am I going to be having a mortgage or is my house going to be paid off or am I going to be living in a nursing home? , am I going to be driving or am I going to have a paid off car or am I going to be, hanging out the nursing home? I guess there’s no, there’s no great way to figure that side of the equation out. But if you can make general estimates and try that, maybe have more of an effort than, than maybe most people do, then you can, you can leaps and bounds, put yourself leaps and bounds over somebody who hasn’t thought that far. And kind of not maybe make up for for the time you’ve lost but make the most of the time that you still have. So 20 years is a great amount of time. So compound money I hope have shown that for you with the compound interest calculator example that I just said.
Andrew: 15:47 It’s a ton of time to be learning about the stock market or getting, filling those information gaps and finding like what you don’t know and then seeking out the knowledge to learn it. I think we’ve been doing this podcast since the beginning of 2017 I think. So, somebody could have listened and just had our show as their educational resource, and I think they would be leaps and bounds above the average person when it comes to figuring out how to apply a financial strategy towards their investments. And so, it doesn’t have to be all at once. And hopefully, when you ask the question of what would be the wisest strategy. Instead, you think what’s the next step ahead from an educational standpoint and then from a financial standpoint and try to go from there.
Dave: 16:48 Yeah, that’s all great information, and that’s all great thoughts as well. And I like how you’re talking about the compounding interest and how even though over a short period you still see that it can have an impact on what you’re investing in that $10,000 into $25,000 in 10 years at a 10 %, rate over those ten years. That’s still a lot of money, and it’s nothing to sneeze at. And another thought that I had about all this is to think about the situation you’re in and if you have kids talking to them about the situation you’re in and making sure that they’re not in the same situation when they’re your age. And using this as an opportunity to help teach them that this is something that they can start for themselves. Now so that they don’t have to worry about that when they’re 58.
Dave: 17:45 And I think that’s one of the greatest things that we could give to kids is to help them realize that this is not something that we should wait for. This is something we should start planning on now. And that’s one of the biggest things that I saw when I worked at Wells Fargo was that there was no plan for our retirement. And the majority of the public has nothing or next enough aid and they just haven’t started. And they don’t know where to start. And there’s not a lot of education out there. And that’s why a big reason why Andrew and I started this was to try to help people learn, learn to invest and how that can help them at any stage of their life.
Andrew: 18:37 I’m going to read the next question here. It’s from Mark. He says, Hi Andrew. Good afternoon. While I’m pretty sure that your research and presentation are stellar, how relevant is it to someone who’s within seven years of retirement? So another question I think that we will, I want to include here because it goes with the theme that we were talking about with Lynn. So he, he also, Mark talks about how thankful I have a future defined benefit pension and some defined contribution for ones that I’ll be able to consolidate and invest. All of that is taxable. Ouch. Though I’ll be slowly rolling those IRA monies into my Roth. Nonetheless, I believe I’ll be facing the taxman perpetually. He says I guess what I’m saying is, please tell me how your approach is also the approach for someone who is 58 and hoping to get the balance right with what time I have left in the workforce.
Andrew: 19:38 Hopefully, less than seven years, and the rest of my life only gotten those. Um, the, the one thing I saw interesting about Mark’s question, and I think is something that we can consider. If you’re listening to this podcast like five, six years down the road, then that might not be relevant. But as it stands right now, we’re recording this in the middle of 2019, and there are favorable tax brackets for many different individuals. And so I was speaking, I was, it was a financial advisor. He was talking about how right now is a great time for people to do rollovers because that’s a way of them to take advantage of the lower tax brackets. So I’m far from a tax expert and, I feel like we, we try not to talk about that too much on our show. Outside of like the general idea that a traditional IRA is a tax at the front and then a Roth Ira is as tax at the back and the Roth is tax up to the front.
Andrew: 20:49 So I think it’s an interesting idea if you are in a situation where you are like a mark, and you are going to be facing perpetual tax, I mean, we’re all, we’re all going to face perpetual tax, right? What’s, what’s the, how’s the saying goes? Something about the only certain things is death and taxes, I think. So you’re not going to avoid taxes indefinitely. But that could be one way to minimize the tax. If, if, if you, if you think that in the future, tax brackets will go back up. Um, then it’s something you might want to take advantage of again, depending on the person’s situation and where their tax brackets fall currently. And how much they need to roll over and all of those sorts of things so that I guess something to keep in mind as far as the rollover stuff and, and the, the defined contributions and benefits as far as the seven years. Dave, I think we’re kind of, we talked about it with the last question, but he is asking a little bit differently because he does talk about a shorter time for prayer than like 24 years or 22 years. He’s talking about seven when you think about that.
Dave: 22:14 Oh, well it’s an interesting question, and I guess, his, it comes down to what he is comfortable with and is in seven years. Is he going to be able to accumulate enough wealth to live off of that for the next 25 years? I don’t know. That’s, I mean that’s, that’s a really good question. And, like you were saying earlier, it unloads a lot of Pandora box because every question you open an answer, there’s going to weed to 15 other different questions in, the traditional dogma of investing is the closer you get to retirement, the more conservative you need to be. IEE moving more of your money into less risky assets I. E. Bonds or money market accounts, things of that nature that are going to be a lot less volatile and I have a lot less fluid to do with duty to them.
Dave: 23:13 And that’s kind of the traditional thought on that. And that’s really; it depends on your, your risk tolerance. And I guess the question I’m curious about is he’s taking the money that he has in these two vehicles, the pension and the 401ks and rolling them into a Roth. Is he doing that because he needs, he wants to have more control over that money and be able to invest it as he wishes to do? And if that’s the case then investing in a value investing approach with dividends is going to be something that I would recommend he follows. If he has other plans or other ideas about that, then I guess that would dictate what route he would want to go. But even if you’re in the pension, I’m not sure about the pension. I don’t know. I can’t speak to that intelligently because I don’t know enough about those.
Dave: 24:08 But 401k’s he can allocate his portfolio more towards a conservative one if he wishes, he can switch it to where instead of it investing in a more stock-based portfolio, he can switch it to a more conservative approach with having more bonds or, or bond ETF or fund mutual funds. However, his foreign case set up, I mean that’s something he can do. But, I guess I come back to, again, you’re still going to need income. You’re still going to need to generate revenue going forward. And if he’s moving it out of those other vehicles into a Roth that he, that he’s going to be able to control, they know. I think you would want to set it up such that he’s creating income for himself as he goes forward. What are your thoughts on that?
Andrew: 25:06 I think, yeah, I think I would generally agree. When I think about both of these questions, I guess I have to be careful with my words here, but it’s, to me, it’s, everybody has their different, um, personal situation and how, how they’re going to approach the market and how it’s, how you’re going to make the market serve you. Right. Whether that’s through stocks, bonds, money markets, whatever it is. So, yeah, while we’re all coming at it with our unique angles, we need to understand that is, it’s, it’s up to us, and our responsibility is to teach ourselves about this and. And to seek out the resources to, to be able to learn about how to apply this best for, for, for my situation. So, you could go and talk to a financial advisor and have them kind of talk you through it. You could take a more DIY approach and, and try to learn about it yourself. But I guess the third option is to see your situation and feel discouraged about it or feel overwhelmed by all of the different options and then do none of that. And I think that would be the greatest mistake of all.
Andrew: 26:33 While we all have our unique situations and, and our unique timeframes, I think learning about the generalities of each of these is going to be beneficial regardless. So, you can like, let’s say you’re right, well, ah, let’s say I’m a, as it’s completely hypothetical, let’s say I’m 64 years old, I never knew anything about the stock market. , I figure I only have five years to invest. And so I decided never to learn about stocks. But then let’s say, um, you made that decision and then the stock market had a crazy, let’s say there was another.com boom, right? Where all these tech stocks went crazy. And then you started to have stories, which I mean, today I guess we still, we’ve had a really strong bull market. But we haven’t had the crazy stories like you heard, in the, and the late nineties, definitely like if you, if you pick up a book like that one book I was talking about bull market the books called Bull. It’s talking about some of the craze of that and some of the just everyday average Joe people who are making fortunes overnight because the stock market was going wild.
Andrew: 27:54 So let’s say you’re 64, you decided, well, I heard that you’re not supposed to you, that you’re not supposed to be in stocks if you’re about to retire at 65 and you’re 64. But if you never really learned like why that’s the case or why stocks move as they, you tend to do well then one, if you saw your neighbor over there, make 100,000 on the stock overnight. Maybe you would, you would get drawn to that and then completely lose because you know you’re pursuing a strategy that I guess the fact of the matter is, is we all generally have the same access to the same type of assets to invest in, whether that’s stocks, bonds, ETFs, money market accounts. Yeah. Not all of us can be as wealthy as Mark Zuckerberg. Um, yeah. Now all of us are going to have 50 or 60 years to compound and build millions or billions.
Andrew: 28:58 Yeah, now all of us are going to have the type of returns like Warren Buffett, where we’re going to compound money at 25% a year. But there are these vehicles out there, and it’s like, okay, well if, if there’s a piece of medical equipment that helps my life, once every couple hours and it makes me that much more comfortable than, yeah, I’m going to take advantage of that. You can think of stocks and investing and personal finance in the same way too. Yeah. I might not have the greatest thing in the world, but these things are out here in these, these vehicles are out here that I can use. And, and with a little bit of education and understanding of how they can benefit you, then they can improve your life. And so sure, you might not have the sort of perfect financial freedom where you’re sipping mimosas on the beach all day, every day and traveling halfway across the world during retirement. That might not be the case, but, you might still find benefit in investing in the stock market out of the stock market, um, having a budget compounding money in one way or the other. And so there’s a lot of benefits to that. And I hope over and over and over again that feeling discouraged about not being at the ideal situation investing wisely would I hope that’s not so discouraging to keep people from wanting to learn and take the next step.
Dave: 30:35 I agree, and I think that that bit of advice is so profound that it’s something that we all need to hear. Being paralyzed by inertia can be so detrimental in working through that and finding a path in following that path is going to be so beneficial to your life, whether it’s investing or anything else. And I think that’s one thing that we all need to focus on is we get, so I guess paralyzed by the overwhelm of information sometimes that it’s hard to know where to go and instead of doing anything we don’t do anything at all. And that, as Andrew has said, would be probably the biggest mistake of all. And so I think if you could take anything out of what we’re talking about today, whether it’s a specific strategy or just a general idea, is finding a path and following that path. Whether it’s value investing, whether its growth investing, whether it’s, working with bonds or ETF’s or all the other vehicle investment vehicles that are out there like Andrew was mentioning is going to help you in the long run.
Dave: 31:51 Whether it’s you have seven years, whether you have 15 years or whether you have 45 years. All of those things are going to be helpful to you whether you have a short time horizon where the ever long time horizon and there’s a lot of other questions that you have to ask and answer along the way. And if you have those questions, set a date or an I will help you as best we can. But there are other out or the resources out there for you as well. So I hope that you guys can take what we’re saying today and work at that as an opportunity to try to learn something and grow. And I think that’s one of the things that keeps us young, quote-unquote, is by always learning and growing and finding new things to be excited about. And whether that’s investing.
Dave: 32:36 So you have seven more years before you can, or do you have 45 years before you can retire. , it, it just, it all depends. But again, find a path, pick something, do it. And if that doesn’t work, change, it’s okay. It’s okay to not pick something in, in, six months down the road, a year down the road you’re like, Eh, this is a for me, and you want to do something else. Didn’t do it. , there’s nothing wrong with that. There’s no shame in it. And there was no; there was no harm, no foul. The only harm is not trying, as, as Yoda used to say that there is no try. There’s do or do not. So I’ll end with that. And, I’ll suggest that if, if you are at that stage where you’re in that paralysis, and you have no idea where to start, well we have a path to, so we have the back to the basic series that we did way back in the archives starting to episode four. The three and that it can be a great first step to walking through and understanding as you said, Dave, these investment vehicles and, and learning the basics behind them.
Dave: 33:41 While that’s your first back to the basics episode, that can be one place to start. Yup. That’s fantastic. A fantastic idea. All right folks will, that is going to wrap up our discussion for this evening. I hope you enjoyed our conversation and hope you got something good out of this. And I hope this will help some of our, that are closer to retirement and are unsure of where to turn or what to do and how to, to go forward. There are options for you, and there are things that you can do. You just got to find one and pick it and go with it. So without any further ado, I’m going to go ahead and sign us off. You guys go out there, and that’s what the margin of safety emphasis on the safety. Have a great weekend. We’ll talk to y’all next week.
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