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3 - What is the best way to invest in carbon credits and which funds do you guys recommend?
4 - Should I continue to keep a large amount of cash in savings if I’m planning to buy a home or should I invest it due to rising home prices?
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome to Had the Money. I'm Joel and I am Matt.
Today we're going to answer some of your listener questions. Yeah,
(00:25):
we're actually going to share seven or eight questions with
our listeners today, but we're only going to answer a
few of them. Yeah, and just play a bund and
just be like, hey, yeah, there's a couple here. Some
of these other ones we actually didn't dig. No, we've
got we really do have some great ones to get
to today. We are going to talk about this terribly
crummy insurance product that you probably shouldn't have. What kind
of insurance product might we be talking about. We'll get
(00:46):
to that one. Uh, We're going to talk about a
fancy investing product, and the question asker is wondering where
it is that we fall on the spectrum of some
of these alternative investments and then saving for your home,
specifically when the goalposts have moved as to what is
going to take for you to purchase at home. We'll
get to that more during today's Ask Count of Money episode.
Speaker 2 (01:06):
Joe thought you saved up twenty percent. It turns out,
as home prices have gone up, you got fifteen percent
now exactly. And that can be demoralizing in deflating. We'll
talk about that, but Matt, before we get to that,
I want to throw a frugal or cheap out your way.
I read an article this week in the Washington Post
by friend of the show Michelle Singletary, one of the
great personal finance minds of her generation. We've had her
(01:27):
on the show. She's great.
Speaker 1 (01:29):
One of the things the thing she wrote about was
is she great? Though? Joel, you said she's great, and
then you start laughing, so it's like you're making fun
of her a little bit.
Speaker 2 (01:36):
I might be making fun of her on this one.
I might know she really is great and so smart.
But she says it didn't take much money to get married,
just one hundred bucks. For all you people thinking you
need like a wedding or something with like friends and
family present and maybe like.
Speaker 1 (01:48):
The dance for you don't need witnesses. What's your problem.
Speaker 2 (01:51):
There's a thing called the justice of the peace. You
go to the courthouse four cover seventy eighty one hundred
bucks and you're done with it. Do you agree with
Michelle isoud being frugal and cheap?
Speaker 1 (02:00):
Well, i'll be I read the article. You shared it
with me, to be fair, she's saying, you don't have
to spend tens of thousands of dollars because it was
sort of like a It sounds like she teaches like
a personal finance class maybe to like newlyweds or couples
at least, is like it may be a couples in
money class, and folks are like, oh, they're yelling out
how much it costs forty fifty thousand. What depends on
how many people you invite to the wedding or if
(02:21):
it's a destination wedding or not. All these things have
an impact. And of course it's yeah, it's a trick question.
But she's pushing back on the fact that folks automatically
assume that you need to spend that much.
Speaker 2 (02:31):
And I will say that you're not. It's not official
unless you throw some knockdown, drag out.
Speaker 1 (02:35):
Yeah, and legally, of course, in the eyes of the law, yeah,
you are married just by you know, by dropping one
hundred bucks. But I'm going to push back a little bit,
and I think it comes like you you completely leave
out the aspect of culture, yes, and what it is
that you want your life to look like, and the
kind of world that you want to live in and
the sort of events that you want to attend, whether
(02:56):
you're friend you know, like what if you had a
friend like who was getting married and they're like, yeah,
we're just thinking out going to the courthouse, and we're
gonna drop a hundred bucks, Like, wouldn't you be bummed
that they weren't throwing at least like some kind of party. Yea, right,
it doesn't have to necessarily be some over the top
celebration where they go into like loads of debt. But
I do think that there's somewhere to land in between
(03:16):
spending one hundred bucks and then like a destination wedding
to like Ta heat He or something like that.
Speaker 2 (03:20):
Agreed, Yeah, And I think there's times where restraint is necessary,
and especially as a lot of folks are getting married
at older and older ages, they're often more responsible for
the cost of the wedding. And I get where you're saying, Listen,
if we want to start off, you know, financially solid
way as a couple, I don't want to drop twenty
grand of our mutual dollars on this wedding. That's the
(03:42):
down payment, or that that's we're saving up for our
first car together or whatever it is, So putting more
money towards the wedding means sacrificing on other things. Is
not just mom and Dad's money necessarily, I think.
Speaker 1 (03:52):
Well, I think there's also the argument too that like
when you are older, say you're getting married at the
age of thirty, at the age of forty, you also
have a lot more money of your own, like more
of your your own dollars that you could potentially put
towards because so, like I guess, I see it almost
as depending on how old you are, it would be
easy as easy to throw just as big of a wedding,
because it's either, like you said, if you're like I
(04:13):
don't know, fresh out of high school or fresh out
of college and it's and mom and dad are helping out,
or you're a lot older and you've just saved up
a lot more money yourself, there's still the temptation, I
think to possibly overspend relative to what it is that
you can afford.
Speaker 2 (04:26):
You just thinking about the way some other cultures around
the world handle weddings, and it's like everybody takes off
for like three days and it is pomp and circumstance.
Speaker 1 (04:35):
It's out the wazoo. It's in a huge deal. Yeah,
And it.
Speaker 2 (04:38):
Doesn't necessarily mean that that it's going to cost a
ridiculous amount of money. It just means that you've got
the people that matter most, who are celebrating your union,
who are going to be part of your lives for years,
to come together at the same point in time. And
I think that is the priority. Not necessarily the fancy
venue or the over the top food to serve to
your guests, but like I do think that getting the people,
whether it's twenty or two hundred, people that matter the
(05:01):
most in your life together to celebrate, I don't know.
I think there's something really important about that. Yeah, totally. Yeah,
And it doesn't have to cost forty grand. It can
cost likely six grand, maybe a lot less.
Speaker 1 (05:10):
It can just be a really nice party you run
out a favorite restaurant of yours, that kind of thing.
Because I guess one of the things I want to
push back on is she kind of laid out a
few parameters that she thinks folks should have, like boxes
that they need to have checked off before they throw
a pretty big wedding, and it's things like making sure
you're funding your retirement all right. I can get behind that,
making sure you're not going into debt, that you have
(05:31):
the cash on hand. Okay, I can get behind that,
except for the fact that she includes student loans in there.
That's that's one that really stood out to make them like, what,
like folks are paying on their student loans for like decades.
I never get married pretty long time, exactly, and it's
not quite apples to apples, but I feel similar. I
feel the same way towards getting married and throwing a
decent wedding as like having a kid. I think a
(05:54):
lot of times there's a temptation to feel like you
have to have all your financial ducks lined up in row.
But in the meantime, you're just missing out on a
whole lot of goodness in life. And no one's fully
prepared for your parents going to be fully prepared.
Speaker 2 (06:07):
Financially, and all the books are I'm not saying they're
waste of time, but it does parent you just have
to do it. Yeah, it's times you gotta do it exactly,
So all ti time, you just kinda get married, even
if you don't have the money to throw up a
ridiculously expensive, awesome money But.
Speaker 1 (06:21):
I think you can still do it on a budget.
They'll still have a decent wedding. Make it cool. Exactly,
totally agree.
Speaker 2 (06:25):
All right, let's mention the beer we're having all this episode, Matt.
This is called Whipped Pineapple Goza by Westbrook Westbrook Brewing.
Looking forward to having this one on the show. Your thoughts, Yeah,
at the end of the episode. By the way, if
you have a money question for us, we'd love to
take it on the next Ask htm episode. Just got
to how to money dot com slash ask or record
your question your money question. The weirder the better, By
the way, I love the weird questions.
Speaker 1 (06:46):
Matt.
Speaker 2 (06:46):
If you've got a weird money question in particular recorded
on the Boyce Memo app of your phone, send it
to us via email at how to moneypod at gmail
dot com. Matt, let's get to a question now about
retirement plans.
Speaker 1 (06:59):
There might be a little sub.
Speaker 3 (07:00):
II Joel on thattt. This is even from alling for Connecticut,
reaching out first. I have been listening to the podcast
for over three years now, and I really enjoyed the
content you put out. It's been really helpful for both
me and some of my peers who have been able
to gain helpful insights into how they invest in their ROTH.
I raise and even for one friend self published her
own book. I have a question now about four to
(07:22):
one ks and my first full time job post college.
I know there is a four to one K plane
that's offered, but there's two caveats. There's no four to
one K match and the plan is through Voya, not
Fidelity or Vanguard. In fact, I did some research into
the four to one K plan potential asset allocation options
that are offered, and the average annual fee I found
(07:42):
for them is one point sixty six percent. My question
to you is, despite the high fee of being no
four to one K match and it pin through Voya,
should I still invest in that. I am plenty on
going to grad school in twenty twenty five, potentially far away,
which may factor into whether invest in this or I
have been able to max out my ROTH diary the
(08:02):
past two years, so that is taken care of. I
have been putting extra money otherwise for retirement into my
brokerage account. I appreciate the helpful insight, and if there's
one book I recommend checking out, it would be Beer
Hiking New England, combining some scenic hikes with some nearby
excellent craft breweries.
Speaker 2 (08:20):
Thank you beer hiking USA, right, that's not what he said,
but in New England. But maybe we should create the
beer hiking in the southeast.
Speaker 1 (08:28):
How awesome does that sound. This is a fantastic book recommendation, Stevens,
So thank you so much for that. That's like the
perfect combo, like two of our favorite things.
Speaker 2 (08:36):
Yes, exactly, and I beer hiking somewhere while talking about money.
Speaker 1 (08:40):
No, I mean it's over the top right there, but
you gotta have you got to combine that physical activity.
I think it's one of the reasons I've always been
drawn to like. It just makes me think about when
Kate and I we just started getting into running. We
moved out. We didn't move out west, we were traveling
out west. It was a massive road trip, and some
of my fondest memories of Seattle Portland were like running
(09:00):
through these cities while getting to know them. Because here's
the thing, you're also eating a lot and drinking a lot,
and it can be easy to overdo it unless you're
actually like burning a lot of calories and moving around.
So it allows you to experience sluggish, yes, and it
allows you to experience more of wherever it is that
you're visiting. So I love this idea of like hiking
and craft brew.
Speaker 2 (09:19):
I agree, walking and running through a city. That's like
the best way to explore it. Like stop, stop haling ubers,
get around that way.
Speaker 1 (09:24):
And Okay, so Steven was he also at the beginning
of his voice membory, he mentioned his friends. It sounds
like he's got an awesome group of folks, and it's
worth highlighting just how amazing and how big of an
impact that some good friends like that can have on
your financial trajectory. Joe, it makes me think about like
when we first met and we're both kind of money nerds,
(09:45):
but that was right at this we're both considering rental
properties at the same time, and it's like, oh, you
like to fund your wrath, Ira, me too, And then
it's like, oh, you're thinking about buying an investment property, dude.
That's been on my mind as well, and it's certainly
allowed us to prosper or financially because we're spurring each
other on. We are encouraging encouraging each other as opposed
to doing maybe dumber things with our money.
Speaker 2 (10:07):
Okay, it's the same thing with the garment app on
my phone. I feel like that's like my new social media.
It's like seeing what my friends are doing in our
sair physical activities and it just motivates me to get
out there and do a little more. And I think
like it surprises me how such a small and seemingly
insignificant thing can have a pretty big impact on your
motivation to do the thing that you should be doing.
(10:27):
And maybe it's just kind of my base competitive nature,
but I'm using it to my advantage.
Speaker 3 (10:32):
Lea.
Speaker 1 (10:32):
Well, it's I mean, it's just encouraging, right, Like that's
where it's like iron sharpening iron. And I know, well,
I know from a financial standpoint least, that I am
certainly in a better position because of our friendship and
our appreciation of personal finances. So I'm sure the same
is certainly true when it comes to activity. Well, for
you it's garment, but for me, just going to the
gym and just like being surrounded by other folks who
(10:53):
are also doing this thing where we are challenging. If
you don't show up, they're gonna text me be like, Matt,
were you doing? So let's get to love to hear
that You've got awesome friends, by the way, that's that's
what we're highlighting here. But our condolences to you that
he has such a trashy four on and K option.
Here in the show, we don't love to dump on
specific companies, and that being said, Voya they don't have
(11:16):
the absolute worst offerings in the world, but they're also
far from being the greatest. Their target date funds, for instance,
can cost eight times what Vanguard's does. And so I'm
shocked to hear that the average anal fee in your
plan is north of one and a half percent. That's insane,
it really is, and it's honestly, it's like unforgivable. And
with that, and on top of that, he's got no match,
(11:36):
he's got awful investing options, and so it certainly makes
it seem like that your four on K it's likely
not going to be worth the effort. Like if you
had a match, I think the calculation would be different, right,
We would want you to make sure that you contributed
enough to get that full match, no matter what, because
no fee, regardless of how high the few might be,
(11:56):
even these awful ones from Voya, they can't eat into
your returns enough to overcome a decent employer match. That
match is going to outpace those fees every day of
the week. Yeah, that's right. I mean that's not That's
probably where you want to stop.
Speaker 2 (12:08):
You want to get the full match and then you
want to go invest in another account before you'd even
consider investing more inside of your four oh one K.
But you're right, if there was a match, we would
probably have different advice. But the fact there's no match
that makes it a more interesting decision. And so Steven
said he's maxing out as roth Ira, which is great.
That would be our first piece of advice too. That's
(12:30):
the next best account. And the fact that basically it's
an individual retirement acount, it doesn't matter, it doesn't have
anything to do with your employer.
Speaker 1 (12:36):
You can go wherever you want.
Speaker 2 (12:38):
For folks who do have chrummey four OL and k's
roth iras could be a great first option. Yeah, but
then what I do You mentioned the average expense ratio
of the funds that you have on offer to you
through Voya. After that, I would look and at least
see what the lowest cost funds that you have access
to inside of that four O and K are that's
true because you might find he might find Matt a
(12:59):
reasonably priced total stock market fund or s and P
five hundred fund that comes with an expense ratio below
half a percent, right, and even that is like agree
just compared to Vanguardi Fidelity Standards or Schwab like some
of our favorite brokerages. But if that's the case, while
not ideal, you might still want to contribute at least
some money money to that four oh one K totally,
but only into those specific funds.
Speaker 1 (13:19):
So yeah, you want to target those specifically avoid these
high cost ones. Something else worth mentioning is steam and
do you have access to an HSA Health Samvans account.
That's another tax advantage account.
Speaker 2 (13:29):
Yeah, if you do, that's like triple tax advantaged, and
that's an even bigger tax break. And maybe the cost
or lower inside of that fund. I don't know, it's
at least worth looking, but that could be another account
you maxed out the roth IRA. Maybe the AHSA is
the next account to look to, and then the four
to one K. If we're talking about investing in the
funds that have the lowest possible fees attached them, which
(13:49):
are going to be typically those index funds Matt, that
are probably diversified that we recommend anyway, So you could
opt to go straight into a taxable brokerage account instead,
by the way, but we do you think that the
four to one k makes more sense if they offer
a funder too, at least in that reasonable range. And
for us, the reasonable range means half a percent or less, right,
because the average expense ratio you mentioned is certainly sickening.
(14:12):
Like I wanted to throw up, Matt when I heard that.
It's pretty nasty. But our favorite funds could be at
least palatable, and so it's still hard for me to fathom.
I guess why any employer would pick Voya or a
similar high cost provider. It's probably because they don't know better,
Mattam makes me think about our recent conversation with Dan
Otter when it comes to teachers and what they pay
their crumby four or three to be retirement accounts in
(14:34):
so many cases. But this is I think maybe where
Steven could come in and provide some help if you
wanted to as well. I think it's worth mentioning this
to the human resources department where you work. Yeah, talking
to them about the high fees, the impact that those
fees are costing employees over the years, even though it
sounds like he's not going to be there for long,
like maybe this isn't his long term career home or
(14:56):
anything like that, future employees there are going to be
able to enjoy more of their money thanks to his.
Speaker 1 (15:01):
Actions totally in the fact that he's not going to
be there for very long. I think that's another argument
for possibly going ahead and contributing to the four one k,
because that's I mean, that's going to be fewer years
that you're having to pay that ridiculously high fee agreed,
And then when you part ways, you can always roll
that four one k into an IRA with the low
cost brokerage that you're using for your roth IRA. So yeah,
(15:21):
I think it makes sense to go ahead and take
advantage of the tax incentive to invest there in your
four one k, even though the fees are terrible, And
I think the only reason that we might tell you
to not invest is if you need to just save
up some more cash for grad school. You mentioned you
got that on the horizon for next year. We would
rather see you have more cash on hand to pay
for that degree. So you don't have to take on
(15:42):
student loans at a higher interest rate. I think that's
one potential reason to just invest less overall, so that
you can minimize your debt load moving forward, have keep
that cash on hand, and that's going to give you
a lot more options as well. And then upon graduation,
assuming you have a much higher paying job, well, then
you can really ramp up your investing. Yeah. So yeah,
I think that's how we would approach it. Give it,
(16:03):
you know, if we were in your shoes.
Speaker 2 (16:04):
Yeah, I think if you knew, hey, this is the
employer I want to be at for thirty years. You're
talking about a longer term calculation because you're going to
be in that four one K plan for a long
time to come. But the fact that you're only you're
not going to be there too too much longer. Put
the money in the four one k. If, like you said,
you've got the money to pay for grad school and
you take out ridiculous loans and then just migrated to
(16:24):
a low cost brokerage account once you leave that job,
I think that's a good plan. But yeah, a lot
of moving parts, Steven. Hopefully that helps you make your decision.
Speaker 3 (16:33):
Matt.
Speaker 2 (16:33):
We've got more questions to get to, including one about
a life insurance policy that is terrible. We'll get to
that question and more in just a second.
Speaker 1 (16:48):
Right now, we are back from Lefroic. We've got more
listener questions to get to. Let's hear from a listener
who has been financially hoodwinked.
Speaker 4 (16:55):
Hi, guys, my name is Megan. I'm reaching out because
I heard an improvial episode. You talk about somebody that
reviews like retirement or investment accounts. But my significant other
signed up for an index fund through trans America about
a year ago. We signed up for it under the
(17:17):
impression that there was a cab on both earnings and loss,
essentially thinking that there would be no money lost in
this account. However, we just recently got our yearly statement
and there's only about half of the money that he
had put in throughout the year left in the account,
(17:37):
and it looks like a majority of it has gone
towards fees. We're not really sure at this point if
this was the best route we could have taken, or
if we should close the account. Maybe if we do,
we would be surrendering the account and getting zero dollars back.
So we don't really want to do that unless we
know that it's the right decision to make. However, I
(18:01):
also forgot to mention he's putting in two hundred dollars
a month towards that account, but he also has an
account with my daughter as a writer on it. I'm
not sure if that would be two separate accounts or
if it's one of the same, but he's putting in
two hundred and then he's putting in fifty dollars towards
the account for our daughter. These accounts were sold to
us as though they could be used for life insurance policies,
(18:23):
retirement accounts, a college fund for our daughter someday account
that we could borrow from without any real penalties, besides
having a lower payout once it does come to retirement time.
Speaker 3 (18:35):
I don't know if.
Speaker 4 (18:36):
You've looked into these accounts at all, accounts at all,
I'm sorry, or if you know anything about them. If not,
I totally understand. If you could just give us the
email or the website information of whoever looks into them,
I would greatly appreciate it.
Speaker 1 (18:50):
Thanks bye, Megan.
Speaker 2 (18:53):
This is a great question, and we will get to
the heart of your question in just a bit, but
there's a lot more than we actually have the ends.
Before we get to the specific part of your question.
Speaker 1 (19:02):
Let's address a lot of what Megan is talking about.
Speaker 2 (19:04):
Okay for the listeners, and I'm so sorry to hear
about what's happened to you in this investment endeavor. But
first things first, this is not a retirement account that
your significant other has been contributing to, and you have
not been investing in a straight up index fund like
you've been told if you if you had been via
a traditional retirement account, if you had been investing in
index funds recently, even if it had higher than normal fees.
(19:25):
We were just talking about fees, Matt, and how that
can impact your decision which accounts you're going to go in,
what funds.
Speaker 1 (19:30):
You're gonna choose.
Speaker 2 (19:31):
Well, even if you'd been paying exorbitant fees in an
index fund, you would still have seen your balance increase
substantially just because of what the SMP has done over
the past.
Speaker 1 (19:41):
Year, right, at least twenty percent more over the past year,
and like so fee well feel minimal, Yeah, over forty
percent over the past two years. Yeah, So if you're
not what you were expecting to see. I'm sure based
on what you've seen reflected in the market.
Speaker 2 (19:53):
Exactly so obviously disappointing, frustrating, and somebody's asked the suplaining
to do right. As Lucy would say, but this sounds
exactly like an indexed universal life policy to me, Matt,
the fees, the commissions, they are a dead giveaway. It's
one of our absolute least favorite financial products because it
attempts to combine things that shouldn't be combined. Life insurance
(20:15):
and investing. Those are both great and necessary things for
adults to do right, to have money going into index ones,
to have life insurance, to cover your family in the
event of your potential early death. But combining both of
those things is a recipe for disaster. As sadly Megan
has sounded.
Speaker 3 (20:32):
The hard way.
Speaker 1 (20:32):
Yeah, it's like me in college when I decided to
make a sandwich smoothie. I've ever told you that story,
I really, I haven't. Sounds like a wreck, Oh it was.
I got into I never made smoothies my entire life,
and then would you put a sandwich in the blender? Yeah, okay,
it was terrible nasty because I was thinking, Okay, I
love smoothies. Yeah, Oh, I love sandwiches. What if I
made a sandwich smoothie, Yeah, it tastes like vomit. The
(20:54):
two things on their own fantastic things to consider. Combine,
they're awful.
Speaker 2 (20:58):
If I'd known you back then, I could. I told
you from personal experience. It was a bad idea because
when my sister had jos surgery back in the day,
I had to blend everything just to get food in
her mouth. If asially hated that there were some nasty
things that they put in that blender.
Speaker 1 (21:10):
Well, if it was just a sandwich and like ice
or water or something, I think that'd be one thing.
But I added milk and banana because it's like, well,
you always start every smoothie with a milk and a banana. Yeah,
and yeah, that was a massive mistake. Me learn from math.
People don't make a sandwich smoothie and don't combine life
insurance and investing. It's funny. Well I shouldn't say it's funny.
(21:32):
But Megan, she said that she wasn't supposed to lose
any money. Well, Megan, you didn't lose any money. You
paid fees. There's a difference between having lost money in
the market versus like paying for a service that feels
like you totally got taken advantage of because you didn't
take advantage of the service, right like you didn't have
to use your life insurance, which is obviously a good thing,
(21:53):
but you didn't actually lose money. You paid that money
in fees towards this financial product that you didn't need.
Speaker 2 (21:58):
And that's typically one of the selling points of these products.
Matt is, Hey, no downside risk. We cap your downside risk.
So if the market tanks, guess what your the value
of your policy isn't going to tank, and that feels
really good.
Speaker 1 (22:09):
But then your upside is capped. The fees are high.
That's what makes these things so egregious. Plus they taught
all the different benefits and they make it sound like
this Swiss army knife like financial product. But we want
you to avoid this, and for everyone out there who's listening,
obviously we want you to avoid it. But for Megan,
the next thing that you want to do is stop
contributing to this account as soon as possible. We don't
(22:30):
want you throwing good money after bad But then, okay,
so you'll stop doing that, But then should you close
the account? Altogether. And because of how new this policy is,
it sounds like you've only maybe have had it around
for just like a year. I think the likely answer
is going to be yes. If you took out this
policy let's say ten years ago, like over a decade ago,
(22:50):
that's where the water gets a little muddier. The pros
the cons they become a little more complex. But given
especially how fresh it is and how early it is
that you caught this problem, which I'm so high to
hear about, I think it makes sense to just axit
completely before you lose any additional money.
Speaker 2 (23:06):
Yeah, and she asked specifically about someone to review this account,
and yes, we have talked about that in the past. Like,
you can certainly go that route before canceling your policy.
You can do that via the site evaluatelifeinsurance dot org.
So I think that's kind of the heart of what
you were trying to get to. Evaluatelife insurance dot org
is the website you can have. You can pay one
(23:26):
hundred and fifty bucks to a life insurance expert. His
name's James Hunt used to be the insurance commissioner for
the state of Vermont. I want to say, but you
pay him one hundred and fifty bucks. And this is
I mean, honestly, what it takes to go through these
documents and stuff, that's very little to have someone review
your complicated, trashy life insurance policy. But the truth is
kind of basically what Matt was saying, it might not
(23:46):
be necessary to even pay one hundred and fifty bucks
to know whether or not you need to cancel this
policy because the waters aren't money a year in.
Speaker 1 (23:54):
It's pretty sumy policy. Yeah, at least us what it
looks like you should be doing at this point.
Speaker 2 (23:57):
Yeah, I mean, the longer you've had the policy in place,
the more difficult the decision becomes. Making his insight more valuable.
But in your case, it might not be necessary at all.
We're so early on to this, and it sucks to
chalk up your lot to like wipe your hands of
this thing and realize that you lost hundreds and hundreds
of dollars, maybe even a little bit more than.
Speaker 1 (24:15):
That, better than thousands and tens of thousand dollars.
Speaker 2 (24:18):
Though exactly better than lighting more money on fire and
throwing it into this policy.
Speaker 1 (24:22):
Totally, and then moving forward, we would recommend that you
just get a simple term life insurance policy for both
you and your significant other. It's going to cost you
far less on a monthly basis. It's going to offer
you financial protection. Of course, if one of you were
to pass away prematurely, want to say, it's like fifteen
times less the average cost of its indix universals vanely
more affordable. And then you take all those dollars that
(24:44):
you're now saving from that egregiously extensive piece of junk
life insurance policy and then to stick it into a
workplace retirement account if you have one that's offered by
your employer, or simply stick it into a roth IRA
with a low cost provider. Then later down the line
you can think of about a five twenty nine plan,
because it sounded like that was something that maybe maybe
that kind of sold all on it because it's like, hey,
(25:05):
this is this can be for y'all. But if she
ends up going to school and you want to pay
for higher education, you can do that as well. So
I'm guessing that that is on your mind. Look into
five twenty nine plans, but don't prioritize like that's the
cart that should be behind the horse, and you don't
want the cart to get ahead of the horse here.
You want to make sure that you've got your financial
priorities in order.
Speaker 2 (25:24):
Yeah, and Matt, you mentioned it's kind of like a
Swiss army knife type product, and I think that's true.
But also think about this. The Swiss army knife is
nice to have in a pinch, But let's say you're
in your kitchen. You're not chopping up vegetables with your
Swiss Army knife. Let's say you're trying to simply want
a chef'sne open a wine bottle at home, like, you're
not doing that with a Swiss army knife. You have
a dedicated bottle opener for that, and not likely it. Yep,
(25:45):
the Swiss Army knife is.
Speaker 1 (25:46):
The chef's knife for the veggies, and then you got
the wine opener for the wine bottle. Yes, you don't
need the mcguver No. Fifty six gadget red pocket knife
to to whip out in a pinch exactly.
Speaker 2 (25:56):
And so we're saying that there is a much better
option for every single one of these things you want
to do, and you don't need a one size fits
all solution. And in fact, the one size fits all
solution is the most expensive worst thing for you. In fact,
there are different products that are best for each one
of these pursuits you are trying to attain in your
financial life. And it sicks me map that there are
(26:18):
always folks out there who are trying to take advantage
of the complex financial system and the myriad products that
are offered. These universal index life policies are always sold,
They're not bought. Megan mentioned that she said she literally
said this was sold to me, And I think that
is what happens with most of these policies, that someone
who stands to benefit make a large commission is trying
to sell these products, not because it's what's best for you.
(26:40):
They have a great marketing campaign to try to tell
you that it is. That doesn't mean that it is.
She didn't think she needed one of these policies until
someone came to tell her about it. And it sucks
right that to see the money that you've been sucking
away blow up in a cloud of smoke. I hate
that for you, Megan. But if you fall prey to
the sunk cost fallacy and you keep pumping money into
this account, your results are going to be worse over
(27:01):
the long haul. So it's time to kind of cut bait,
and for everyone else out there, beware of folks selling
you a too good to be true financial product. They
end up being the worst. We talk about all sorts
of different financial products on this show, but really it's
really within a narrow band, I guess, Matt, because there
are so many other financial products on offer we don't
talk about very often. I'm glad we got to highlight
(27:22):
this piece of crap one because I know there are
a lot of other people hearing pitches for it, and
in Megan's case, she caught it early, and hopefully in
the case of other listeners, they know what to avoid
now from the get go.
Speaker 1 (27:32):
You know it, buddy. All right, let's now hear from
a listener who's considering investing in an emerging alternative investment.
Speaker 5 (27:41):
Hey, Matt and Joel, this is justin from Manson Iowa.
I love the show.
Speaker 1 (27:45):
Thank you for.
Speaker 5 (27:45):
Sharing your practical wisdom for us. I've been learning about
carbon credits and the emerging carbon credit space, and to me,
it seems like an opportunity for some good returns if
I can figure out the best way to invest in
(28:06):
this space. And I came across Carbon Mutual funds and ETFs,
and so I was wondering, what do you guys know
about carbon mutual funds and ETFs and would you have
any that you would recommend?
Speaker 1 (28:19):
Thanks, Mat, I feel like we're hearing more and more
questions from people who are trying to find some sort
of investing magic right outside of maybe some of the
meat and potatoes things that we recommend. True, I thought
you were going to say, there's more and more folks
who are trying to take advantage of global warming and
trying to path the retireative.
Speaker 2 (28:38):
Exploit the dying world to their financial benefit. Let's hold
about that's not the case. But I think what's so
fascinating so much of the time when people are trying
to do that, when that is the question and this
might not be the case for you justin I'm not
trying to throw you into the bus here, but so
much though, I frequently see when people are asking about
investing in alternative assets or they're attempting to find higher returns,
(28:59):
they want to juice those returns so that they're able
to see their account balance grow more quickly. Well, oftentimes
what they're trying to do is compensate for a more
meager savings rate. Right, they're trying to do more with less.
They want that balance to shoot up, and so they
opt to take more risk than make sense for their
financial situation. So I get looking for outsize returns and
(29:20):
sexy places. I get the draw to do that and
to maybe look further afield to see if you can
find something that's going to provide more financial benefit for
every dollar you're investing. Specifically, justin you mentioned carbon credits
and carbon credit ETFs. Well, when you invest in those,
you're hoping that the demand for carbon credits from companies
that pollute more goes up so that the price goes up. Right,
(29:41):
That's how you make money, and it can certainly work,
but it wouldn't be my first choice. You might be
one of those folks who has a baller savings right,
who is saving a significant portion of their income. And
maybe this is just a side thing that you're trying
to do with the small portion of your portfolio. Maybe
you're just trying to increase your investing savviness. But savings
rates this trump investment returns, and that is also the
(30:03):
thing you've got more of an ability to control. So
just make sure you're not one of those folks who
saving five percent of their income and try and find
to find ways to increase your returns. Make sure that
the savings rate is what you're focusing on the most,
and that this is really a sideshow more than anything else.
Speaker 1 (30:17):
Sure, so I will up put one caveat on there
that the savings rate trump's your rate of return, particularly
if you are a younger investor, because guess what, your
investments are really small and to see something change from
I'm just earning an average seven to eight percent or
let's say twenty percent, like maybe you've experienced over the
(30:38):
past year. Well, if you've only got ten twenty thirty
thousand dollars invested, that doesn't really matter all that much,
as opposed to getting a promotion at work and all
of a sudden, boom you got like a thirty thousand
dollars raise or something like that, and the ability to
pretend that doesn't even exist and you don't inflate your
lifestyle and all of a sudden you're s socking away
all this money. That's when your savings rate has a
massive impact. But then if you think of somebody on
(30:58):
the other end of the spectrum, you know, let's say
they're retired, that they're working a little, working part time,
but they've got a million plus invested. Well, of course,
returns have a much bigger impact on basically the larger
your portfolio gets. But I'm guessing, justin just based on
how he was asking it, that he might be a
younger investor. He may not quite have as much invested
(31:19):
in the market. And for you, man, I hear you,
I think it can be discouraging, especially early on, to
be like, man, how come my net worth isn't really growing,
you know, as opposed to like you get to a
certain point after you've been investing for a long period
of time. That time in the market has a massive
impact on your ability to eventually see your net worth grow. Yeah,
(31:41):
and it's just a lot more I don't know, rewarding,
fulfilling when you log in maybe after you've been investing
for a couple decades, to see, oh wow, yeah, the
market's up a whole lot. The market is doing more
for me than I can do for myself. And that's
incredibly fun, I'll be honest, But I also remember what
it felt like early on, when it's just like, all right,
socked another five dollars away. Am I rode a Yes,
(32:02):
five thousand dollars richer this year, But don't discount I
guess the habits, the behavior, the discipline that you're building
by setting that money aside, because over time that's going
to grow into I mean that that's the seed that's
going to blossom into this amazing flower of retirement for you. Well,
the other I like that analogy.
Speaker 2 (32:18):
By the way, the other thing that's happening, Matt when
you're looking towards other ways of investing, oftentimes you're talking
about higher levels of risk, right, And there's always risk
in investing. There's also risk when it comes to not investing, right,
and that's a known quantity risk of inflation.
Speaker 1 (32:36):
Right.
Speaker 2 (32:37):
But that also doesn't mean that we need to invest
in super niche ways to try and juce our returns.
Let the process, I think is what you're saying, basically,
at dollar cost average and time in the market do
its job. My guess is that that Justin hasn't seen
much out there on this topic of investing in carbon
carbon credit. There's not a whole lot out there on
the subject, and that's because it is truly incredibly niche,
(32:59):
right and It's been said that finding finding a niche,
I guess, if you want to pronounce it that way,
will make you rich. And that might be true in
some case. I think it's maybe more they're true in.
Speaker 1 (33:08):
The niches, are in the niches. Yeah, yeah, they're going
to go with a niche prencia, right, I think that's more.
I think that's more about being like a top one
percenter in your profession than investing in off the wall things.
But I see the attraction that I see why people
want to do that. I guess you just have to
know that the greater the risk you're taking on you
could see outside returns, you might also see the opposite,
(33:28):
and that's a big risk.
Speaker 3 (33:29):
Ye.
Speaker 1 (33:29):
Well, and these these carbon credit ETFs are expensive as well.
That's an important part of the investing decision because one
of the main problems with funds that allow you to
invest in carbon credits in futures is the expense ratio
that they come with. The most popular ones out there,
they've got an almost zero point eight percent expense ratio,
and then on top of that they've underperformed a diversified
(33:50):
mix of stocks by quite a bit in recent history
and of course past returns. They're not indicative of future results,
but it is really hard to overcome the much higher
guaranteed expense that you're gonna pay no matter what, and
that's locked in, yeah, no matter exactly. And if you
look back a little bit, like when these funds were
first announced, they seem to have done pretty well, like
(34:13):
they're but it's because they're hot. They're new on the scene.
Folks are thinking, oh, this is gonna be the next
new thing. But since then, it's like, well, not totally
sure what's gonna come of these carbon credit ets. They've
certainly tapered off, and I think there's the juries out
as to the success and the sort of viability of
the carbon credit market and whether or not that's something
that countries even continue to do. Like if you're looking
(34:36):
at it from an environmental standpoint, it's it's not certain
either because some folks have they've caught it essentially like
a license to pollute, right because before maybe before it's like, well,
there's like a pressure to find cleaner energy sources or
to pollute a little bit less. But then when the
carbon credits come on the scene, it's like, oh, okay,
well we can we can do whatever we want and
we'll just buy the carbon credits. It sort of relieves
(34:57):
them of their guilt. Yeah, They're ins are cleared, and
so that's one of the things that makes me a
little more skeptical as to the effectiveness of carbon credits
and then ultimately the future of the carbon credit market. Yeah. Well,
and you mentioned kind of when they first launched on
how they were kind of sexy and people are investing
in them. It makes me think of when a stock
debuts on an exchange. Makes me think of a company
(35:20):
like Rivian love their vehicles. Guess what if I had
invested ten grand in Rivian just because I thought their
vehicles were sexy, Well, I'd have about two grand right now.
I'd be much further away from my goal of buying
a Ribbean eventually actually owning a Ribbian.
Speaker 2 (35:33):
Yes, so just because and think about what the stock
did on the first couple of days. I mean it
was people were riding high on Ribbian, and that that's
the case for a whole lot of stocks. When they
make their debut on an exchange, there's a lot of
people are ecstatic and there's a lot of energy surrounding
that stock. A lot of trading that stock, and then
eventually the fundamental starts to take over and people are like,
does this company make cars that make money? And the
(35:55):
answer for Rivian has been no. They make beautiful cars,
but they don't make money yet, although they've got more
time to burn cash thanks to that new infusion from
VW Right. But the options are limited for carbon credit
investment exposure.
Speaker 3 (36:09):
Right.
Speaker 1 (36:09):
There are a.
Speaker 2 (36:10):
Few ets, Matt, you mentioned that they are, they're kind
of expensive. There are a couple of them, but they're
just there aren't many. So the next I think important
thing to mention here in the answer to this question
is the importance of simplicity. We're not necessarily against sector
investing or having some exposure to single stocks, but only
if it's confined to a small percentage of your portfolio. Right,
(36:31):
Let the incredibly boring stuff do the heavy lifting for you.
The fun stuff, meme stocks, random crypto coins, short selling
whatever stock you think is going to go down in
the near future. Sexy alternative investment choices. Those are spicy,
they can be fun, and maybe it's more interesting to
pay attention to and to mess with. But if the
(36:52):
goal is building wealth, that's really the opposite of what
we want to be doing. The boring thing is getting
us where we want to go, and this other stuff
is probably more of a distraction. Is it going to
provide higher returns? Maybe maybe not, But I can tell
you for a lot of people, it's going to distract
you from the main goal totally.
Speaker 1 (37:09):
Yeah. And to continue my skeptical rant, another potential downside
are the different changing government regulations on the carbon credit front.
Government interference, They can change things overnight. Just think about
the different tech companies and Europe, the EU, they've held
a microscope to companies like Facebook and Apple and how
it is that they're handling data. Not that those companies
(37:31):
don't deserve regulation or some sort of oversight, but it
would just give me some pause before I decided to
invest a major chunk of change into aside from even
carbon credits, even into a single tech stop for instance.
And so diversification owning tech companies, owning those within the
confines of an index fund, like it's going to give
you access to the upsides while limiting the downside possibilities.
(37:54):
This is personally, This isn't something like there is some
single stock investing that I'll do. There is some crypto
thing that I'll do. But when it comes to something
like this, it just feels it feels way too fresh,
way too wild wild West for me to want to
put any money towards. Even though you might love the
mission or and the idea, the ability to commoditize and
create a market for incentivizing companies to polute less, I
(38:17):
still think, I guess I think there might be better
ways of using your dollars to sort of fund that
kind of initiative and that kind of good without actually
buying carbon credit ets, without mixing your investments with the
good that you're looking to accomplish in the world.
Speaker 2 (38:31):
Yeah, there's this concept of core and explore that the
massive chunk of your portfolio that's the core, and that
you're exploring maybe a couple of little rabbit trails off
the side, with a small percentage of your investable assets.
I think that's totally fine. And if this is the
thing you want to explore with a couple percentage points
of your overall portfolio, more power to you. I just
(38:52):
wouldn't put too many eggs in that in that basket,
and I wouldn't expect that's going to make you rich
in comparison to their tried and true path. Where are
you going to funnel the majority of your assets?
Speaker 1 (39:01):
Yeah? Honestly, to me, it almost makes like bitcoin seem
like safe and conservative and non volatile, just because it's
just been around long, which it's never been called that before, No,
not in a history of bitcoin.
Speaker 3 (39:12):
Yeah.
Speaker 1 (39:12):
All right, we'll take a quick break, and after that
we'll hear from a listener who feels like his opportunity
to purchase a home that it is slipping through his fingers.
We'll get to that more right after this. All right, Matt,
we're back. We've got more questions to get too.
Speaker 2 (39:33):
In fact, a couple questions from the same listener who
sent us an email recently. This comes from a listener
pool Kit, and he says, my initial plan was to
buy a home, and it's why I have one hundred
and thirty thousand bucks in liquid cash. But then COVID happened.
House price is skyrocketed. We all know that at this point, right,
he says, After that, interest rates have gone up, so
I'm priced out of the market. I'm planning on maxing
(39:54):
out my retirement accounts this year. Should I still keep
that much cash liquid in my high yield savings account
or should I invest it? I do want to buy
a property in the near future if the rates come down.
Would love to know if non HOA properties are a
good real estate investment as far as being a primary
residence or a rental property. Also, I'm always anxious about
my investments in my retirement brokerage accounts, whether they are
(40:14):
diverse enough and if the expensory show is too high.
What's a good resource to use for my rate my portfolio?
Speaker 1 (40:20):
Type of thing.
Speaker 2 (40:21):
I tried reading on Reddit, but it's too much info.
We've all been there by the local game. Reddit can
be so helpful, it can also be like overwhelming people
battling it out, a lot going on, too much to
take in. Sometimes I totally get that sentiment.
Speaker 1 (40:35):
Yeah yeah, yeah, So we've got several questions to get
to here. Let's talk about the housing part of his
question first, which is a tough one, and I think
Polkit finds himself in a situation that many Americans have
found themselves in. Right, They've been saving diligently, they want
to buy a house, but then it feels like their
cheese had moved the finish line. It got pushed out
a whole lot further because we've seen prices increase, we've
(40:57):
seen interest rates escalate, and now they're wondering if they
should throw in the towel. Well, I think the key
to our answer for polkit is when he said, I
do want to buy a property in the near future.
So that's key. And if rates come down, and we
got to say, we can't guarantee that rates are going
to come down, nor can we guarantee that if they
(41:17):
do that, you'll see prices home prices go down simultaneously,
and in fact, I think we are likely to see
the opposite, because folks are calculating financing into what it
is that they can afford, right, and so if all
of a sudden, oh, well my payment is dropped by
one thousand to fifteen hundred dollars, maybe even two thousand dollars, well,
they're thinking, well, that means I can afford more house.
And I think that, honestly, I think that's going to
(41:39):
significantly drive up prices. Not that I'm making any predictions either,
because it seems that housing generally speaking might be a
bit overpriced.
Speaker 2 (41:47):
A lot of people have assumed, and I think wrongly
Matt that the rates coming down means greater affordability in
the housing market. That might be true, but it also
could drive prices up so substantially.
Speaker 1 (41:57):
I think it will that. Yeah, it might oh true,
all right.
Speaker 2 (42:01):
And the fact is buying a house and as being
a near term goal, I think that means that you
should keep socking money into savings for that down payment.
Speaker 1 (42:08):
Yep, you said you still want that as a goal.
As a near term goals, that's the thing. And if
you're talking about something in the near term, yep, that's
not money that you want to stick in the market.
Speaker 2 (42:16):
And markets are obviously hard to predict. There's only so
much within our control as savers and investors and want
to be homeowners. But we have seen a noticeable slowdown
at least in price appreciation. Right, They couldn't keep going
up at the rate forever, outstripping real income numbers. And
I just think I think pool Kit should stay the course.
He's been investing regularly in addition to saving for that
home purchase. He says he's going to max out his
(42:37):
retirement accounts this year.
Speaker 1 (42:39):
I would say, as.
Speaker 2 (42:39):
Long as you're not abandoning that in order to pad
that savings more quickly. Then keep saving for the down payment,
keep making that a high priority in your life. You
never know when the right opportunity might come along. You're
gonna want to be ready to pounce, even if it
means substandard returns for some of those dollars in your
highyield savings account.
Speaker 1 (42:56):
Yeah, in this case, full optimization of every single dollar,
it's not possible. But what you're doing is you're protecting
those dollars for one of the biggest goals in your
life and for one of the biggest expenses that you're
going to ever experience. But then you also asked about
investing in a non HOA property, which I think could
be a good thing or it could be a bad thing.
Because the because I think he's the way he posed
his question is that he is assuming that an HOA
(43:17):
is a good thing, right, because it essentially protects your investment.
It's like, all right, we don't have the house that's
in shambles two houses down that's driving down the value
of every house in the neighborhood Christmas in July, right exactly.
But simultaneously, I feel like it sort of limits. What
it does is it removes like the extremes, because I
think that that's also going to mean that you're also
(43:39):
not going to you may not see as much appreciation
because there aren't folks who are kind of going above
and beyond when it comes to what it is that
they're looking to get out of their house, which might
drive values in the surrounding area up. And so so
much of it I think comes down to your specific market,
the specific neighborhood that you're looking at, and how that
is going to impact that specific property as an investment.
(44:00):
And that's assuming, of course, that you're looking at this
through an investment lens, which is what you're doing. But
polkett I would say to make sure that you're also
looking at this from a personal from a lifestyle standpoint,
because like overall, like when you look at real estate,
over the past one hundred years, primary residences have vastly
underperformed the market overall, and so if you're looking at
(44:21):
this purely from a financial standpoint, it doesn't make a
whole lot of sense. But you buy a house because
you want to stay in the area, because you love
a certain neighborhood. Okay, maybe you've got friends in the area,
and that kind of thing as opposed to looking at
it purely from a financial standpoint.
Speaker 2 (44:34):
Yeah, I will say hoa's can be a hornet's nest
of rules, fees, and hassholes.
Speaker 1 (44:39):
You have to watch out for that. You have to
know the you know what you're getting into.
Speaker 2 (44:42):
Yeah, the financial abilities of that HOA getting levied with
like a special assessment can be pretty frustrating, can be
incredibly costly. So how much savings does the HOA have
on hand? Is there any deferred maintenance that they haven't done?
You want to answer to some of those questions before
you buy a home in an HOA community, So yeah,
I would at least think about that. And your last
(45:03):
part of the question, you said, is there a place
to get your portfolio rated? I like the idea, but
there's nothing that I know of besides hiring a financial
advisor and having a conversation. The main reason I think
a product like this probably doesn't exist is because our
financial status and our goals have so much to do
with the suitability of our investment choices. But you could
totally hire someone in The two places we'd probably recommend
(45:23):
are Nectarine or Domain money. There are two different types
of low cost advisor services that would say, go to
one of those two services in order to get some feedback.
If you're losing sleep, you're overly anxious, that can help
take some weight off your mind. Having that second set
of eyeballs from someone who eats, sleeps, and breathes money,
who helps people out to reset their financial goals all
the time. And I think Polkit is at least in
(45:45):
the financial position based on what he saved and invested
to be able to fork over the money to get
that second set of eyeballs. I don't know of any
sort of like algorithm or fintech product that's going to
do that for him, but I do think like a
personalized service could make sense.
Speaker 1 (45:59):
Totally, and I think that that would be money well
spent for him specifically. Yeah, but all right, let's get
to the beer, Joel that you and I enjoyed during
this episode. This was a whipped pineapple Goes from Westbrook
Brewing Company. What did you think, bud Man? I liked it.
Speaker 2 (46:15):
The label says sweet, sour, and tropical. It was all
the above. It had like vanilla and pineapple, and for
some reason those things mixed together incredibly well. You dig
it and Westbrook is just a top notched brewery located
in South Carolina over.
Speaker 1 (46:31):
There in Charleston Mount Pleasant, to be.
Speaker 2 (46:33):
Exact, And this is a pleasant beer, Matt. It's I
think one of my favorite beers I've ever had for them,
I really love.
Speaker 3 (46:39):
Yeah.
Speaker 1 (46:40):
Wow, would you think I dug it? But I guess
I was. You know, when you lead with sweet, sour, tropical,
so you lead with sweet, like those are the descriptors.
I expect it to be a little bit sweeter. You
shouldn't be surprised that you wanted it. So, Yeah, it
was like p some sugar in this thing. It has
some tartness going on, and it certainly had that pineapple flavor,
but you know what it kind of felt like, But
(47:00):
it kind of tasted like was a pineapple that wasn't
quite ripe, that was wasn't quite fully right. But I
was expecting like a little more backbone when it co
when it comes to my tropical cocktails, Oh it kind
of it does. It kind of makes me think of
like a rum cocktail with a pineapple and the additional
kind of like tropical flavors. Yeah, it's like the beer
(47:21):
you drink at in the Dominican Republic for sure. Absolutely, Yeah, Yeah,
but yeah, maybe I shouldn't expect all that sweetness out
of a goza because those are Yeah, they are typically lighter, but.
Speaker 2 (47:29):
Their original goza still so fantastic. It's it's like briny,
great stage.
Speaker 4 (47:34):
In the mouth.
Speaker 1 (47:35):
I picked up a whole lot of briny with this one. No,
I didn't have nearly the same compared to the compared
to the original. Yeah, but still glad we got to
enjoy it. I agreed.
Speaker 2 (47:44):
That's going to do it for this episode. We'll have
links to the show notes. Some articles actually the correspond
to some of the things we talked about in this episode.
We'll have those up in the show notes at howtomoney
dot com. There's a lot of other good stuff up
there too, including our credit card tool. If you're in
the market for a new credit card and you're trying
to figure out, well, which one is the best one
for how I Spend, you got a Hada money dot
com In the top right hand corner, you can find
(48:04):
the credit card tool right there, super easy to use.
Speaker 1 (48:07):
Hopefully it helps you out. Matt.
Speaker 2 (48:08):
That's going to do it for this one. Until next time,
Best Friends Altum, best Friends Out
Welcome to Had the Money. I'm Joel and I am Matt.
Today we're going to answer some of your listener questions. Yeah,
(00:25):
we're actually going to share seven or eight questions with
our listeners today, but we're only going to answer a
few of them. Yeah, and just play a bund and
just be like, hey, yeah, there's a couple here. Some
of these other ones we actually didn't dig. No, we've
got we really do have some great ones to get
to today. We are going to talk about this terribly
crummy insurance product that you probably shouldn't have. What kind
of insurance product might we be talking about. We'll get
(00:46):
to that one. Uh, We're going to talk about a
fancy investing product, and the question asker is wondering where
it is that we fall on the spectrum of some
of these alternative investments and then saving for your home,
specifically when the goalposts have moved as to what is
going to take for you to purchase at home. We'll
get to that more during today's Ask Count of Money episode.
Speaker 2 (01:06):
Joe thought you saved up twenty percent. It turns out,
as home prices have gone up, you got fifteen percent
now exactly. And that can be demoralizing in deflating. We'll
talk about that, but Matt, before we get to that,
I want to throw a frugal or cheap out your way.
I read an article this week in the Washington Post
by friend of the show Michelle Singletary, one of the
great personal finance minds of her generation. We've had her
(01:27):
on the show. She's great.
Speaker 1 (01:29):
One of the things the thing she wrote about was
is she great? Though? Joel, you said she's great, and
then you start laughing, so it's like you're making fun
of her a little bit.
Speaker 2 (01:36):
I might be making fun of her on this one.
I might know she really is great and so smart.
But she says it didn't take much money to get married,
just one hundred bucks. For all you people thinking you
need like a wedding or something with like friends and
family present and maybe like.
Speaker 1 (01:48):
The dance for you don't need witnesses. What's your problem.
Speaker 2 (01:51):
There's a thing called the justice of the peace. You
go to the courthouse four cover seventy eighty one hundred
bucks and you're done with it. Do you agree with
Michelle isoud being frugal and cheap?
Speaker 1 (02:00):
Well, i'll be I read the article. You shared it
with me, to be fair, she's saying, you don't have
to spend tens of thousands of dollars because it was
sort of like a It sounds like she teaches like
a personal finance class maybe to like newlyweds or couples
at least, is like it may be a couples in
money class, and folks are like, oh, they're yelling out
how much it costs forty fifty thousand. What depends on
how many people you invite to the wedding or if
(02:21):
it's a destination wedding or not. All these things have
an impact. And of course it's yeah, it's a trick question.
But she's pushing back on the fact that folks automatically
assume that you need to spend that much.
Speaker 2 (02:31):
And I will say that you're not. It's not official
unless you throw some knockdown, drag out.
Speaker 1 (02:35):
Yeah, and legally, of course, in the eyes of the law, yeah,
you are married just by you know, by dropping one
hundred bucks. But I'm going to push back a little bit,
and I think it comes like you you completely leave
out the aspect of culture, yes, and what it is
that you want your life to look like, and the
kind of world that you want to live in and
the sort of events that you want to attend, whether
(02:56):
you're friend you know, like what if you had a
friend like who was getting married and they're like, yeah,
we're just thinking out going to the courthouse, and we're
gonna drop a hundred bucks, Like, wouldn't you be bummed
that they weren't throwing at least like some kind of party. Yea, right,
it doesn't have to necessarily be some over the top
celebration where they go into like loads of debt. But
I do think that there's somewhere to land in between
(03:16):
spending one hundred bucks and then like a destination wedding
to like Ta heat He or something like that.
Speaker 2 (03:20):
Agreed, Yeah, And I think there's times where restraint is necessary,
and especially as a lot of folks are getting married
at older and older ages, they're often more responsible for
the cost of the wedding. And I get where you're saying, Listen,
if we want to start off, you know, financially solid
way as a couple, I don't want to drop twenty
grand of our mutual dollars on this wedding. That's the
(03:42):
down payment, or that that's we're saving up for our
first car together or whatever it is, So putting more
money towards the wedding means sacrificing on other things. Is
not just mom and Dad's money necessarily, I think.
Speaker 1 (03:52):
Well, I think there's also the argument too that like
when you are older, say you're getting married at the
age of thirty, at the age of forty, you also
have a lot more money of your own, like more
of your your own dollars that you could potentially put
towards because so, like I guess, I see it almost
as depending on how old you are, it would be
easy as easy to throw just as big of a wedding,
because it's either, like you said, if you're like I
(04:13):
don't know, fresh out of high school or fresh out
of college and it's and mom and dad are helping out,
or you're a lot older and you've just saved up
a lot more money yourself, there's still the temptation, I
think to possibly overspend relative to what it is that
you can afford.
Speaker 2 (04:26):
You just thinking about the way some other cultures around
the world handle weddings, and it's like everybody takes off
for like three days and it is pomp and circumstance.
Speaker 1 (04:35):
It's out the wazoo. It's in a huge deal. Yeah,
And it.
Speaker 2 (04:38):
Doesn't necessarily mean that that it's going to cost a
ridiculous amount of money. It just means that you've got
the people that matter most, who are celebrating your union,
who are going to be part of your lives for years,
to come together at the same point in time. And
I think that is the priority. Not necessarily the fancy
venue or the over the top food to serve to
your guests, but like I do think that getting the people,
whether it's twenty or two hundred, people that matter the
(05:01):
most in your life together to celebrate, I don't know.
I think there's something really important about that. Yeah, totally. Yeah,
And it doesn't have to cost forty grand. It can
cost likely six grand, maybe a lot less.
Speaker 1 (05:10):
It can just be a really nice party you run
out a favorite restaurant of yours, that kind of thing.
Because I guess one of the things I want to
push back on is she kind of laid out a
few parameters that she thinks folks should have, like boxes
that they need to have checked off before they throw
a pretty big wedding, and it's things like making sure
you're funding your retirement all right. I can get behind that,
making sure you're not going into debt, that you have
(05:31):
the cash on hand. Okay, I can get behind that,
except for the fact that she includes student loans in there.
That's that's one that really stood out to make them like, what,
like folks are paying on their student loans for like decades.
I never get married pretty long time, exactly, and it's
not quite apples to apples, but I feel similar. I
feel the same way towards getting married and throwing a
decent wedding as like having a kid. I think a
(05:54):
lot of times there's a temptation to feel like you
have to have all your financial ducks lined up in row.
But in the meantime, you're just missing out on a
whole lot of goodness in life. And no one's fully
prepared for your parents going to be fully prepared.
Speaker 2 (06:07):
Financially, and all the books are I'm not saying they're
waste of time, but it does parent you just have
to do it. Yeah, it's times you gotta do it exactly,
So all ti time, you just kinda get married, even
if you don't have the money to throw up a
ridiculously expensive, awesome money But.
Speaker 1 (06:21):
I think you can still do it on a budget.
They'll still have a decent wedding. Make it cool. Exactly,
totally agree.
Speaker 2 (06:25):
All right, let's mention the beer we're having all this episode, Matt.
This is called Whipped Pineapple Goza by Westbrook Westbrook Brewing.
Looking forward to having this one on the show. Your thoughts, Yeah,
at the end of the episode. By the way, if
you have a money question for us, we'd love to
take it on the next Ask htm episode. Just got
to how to money dot com slash ask or record
your question your money question. The weirder the better, By
the way, I love the weird questions.
Speaker 1 (06:46):
Matt.
Speaker 2 (06:46):
If you've got a weird money question in particular recorded
on the Boyce Memo app of your phone, send it
to us via email at how to moneypod at gmail
dot com. Matt, let's get to a question now about
retirement plans.
Speaker 1 (06:59):
There might be a little sub.
Speaker 3 (07:00):
II Joel on thattt. This is even from alling for Connecticut,
reaching out first. I have been listening to the podcast
for over three years now, and I really enjoyed the
content you put out. It's been really helpful for both
me and some of my peers who have been able
to gain helpful insights into how they invest in their ROTH.
I raise and even for one friend self published her
own book. I have a question now about four to
(07:22):
one ks and my first full time job post college.
I know there is a four to one K plane
that's offered, but there's two caveats. There's no four to
one K match and the plan is through Voya, not
Fidelity or Vanguard. In fact, I did some research into
the four to one K plan potential asset allocation options
that are offered, and the average annual fee I found
(07:42):
for them is one point sixty six percent. My question
to you is, despite the high fee of being no
four to one K match and it pin through Voya,
should I still invest in that. I am plenty on
going to grad school in twenty twenty five, potentially far away,
which may factor into whether invest in this or I
have been able to max out my ROTH diary the
(08:02):
past two years, so that is taken care of. I
have been putting extra money otherwise for retirement into my
brokerage account. I appreciate the helpful insight, and if there's
one book I recommend checking out, it would be Beer
Hiking New England, combining some scenic hikes with some nearby
excellent craft breweries.
Speaker 2 (08:20):
Thank you beer hiking USA, right, that's not what he said,
but in New England. But maybe we should create the
beer hiking in the southeast.
Speaker 1 (08:28):
How awesome does that sound. This is a fantastic book recommendation, Stevens,
So thank you so much for that. That's like the
perfect combo, like two of our favorite things.
Speaker 2 (08:36):
Yes, exactly, and I beer hiking somewhere while talking about money.
Speaker 1 (08:40):
No, I mean it's over the top right there, but
you gotta have you got to combine that physical activity.
I think it's one of the reasons I've always been
drawn to like. It just makes me think about when
Kate and I we just started getting into running. We
moved out. We didn't move out west, we were traveling
out west. It was a massive road trip, and some
of my fondest memories of Seattle Portland were like running
(09:00):
through these cities while getting to know them. Because here's
the thing, you're also eating a lot and drinking a lot,
and it can be easy to overdo it unless you're
actually like burning a lot of calories and moving around.
So it allows you to experience sluggish, yes, and it
allows you to experience more of wherever it is that
you're visiting. So I love this idea of like hiking
and craft brew.
Speaker 2 (09:19):
I agree, walking and running through a city. That's like
the best way to explore it. Like stop, stop haling ubers,
get around that way.
Speaker 1 (09:24):
And Okay, so Steven was he also at the beginning
of his voice membory, he mentioned his friends. It sounds
like he's got an awesome group of folks, and it's
worth highlighting just how amazing and how big of an
impact that some good friends like that can have on
your financial trajectory. Joe, it makes me think about like
when we first met and we're both kind of money nerds,
(09:45):
but that was right at this we're both considering rental
properties at the same time, and it's like, oh, you
like to fund your wrath, Ira, me too, And then
it's like, oh, you're thinking about buying an investment property, dude.
That's been on my mind as well, and it's certainly
allowed us to prosper or financially because we're spurring each
other on. We are encouraging encouraging each other as opposed
to doing maybe dumber things with our money.
Speaker 2 (10:07):
Okay, it's the same thing with the garment app on
my phone. I feel like that's like my new social media.
It's like seeing what my friends are doing in our
sair physical activities and it just motivates me to get
out there and do a little more. And I think
like it surprises me how such a small and seemingly
insignificant thing can have a pretty big impact on your
motivation to do the thing that you should be doing.
(10:27):
And maybe it's just kind of my base competitive nature,
but I'm using it to my advantage.
Speaker 3 (10:32):
Lea.
Speaker 1 (10:32):
Well, it's I mean, it's just encouraging, right, Like that's
where it's like iron sharpening iron. And I know, well,
I know from a financial standpoint least, that I am
certainly in a better position because of our friendship and
our appreciation of personal finances. So I'm sure the same
is certainly true when it comes to activity. Well, for
you it's garment, but for me, just going to the
gym and just like being surrounded by other folks who
(10:53):
are also doing this thing where we are challenging. If
you don't show up, they're gonna text me be like, Matt,
were you doing? So let's get to love to hear
that You've got awesome friends, by the way, that's that's
what we're highlighting here. But our condolences to you that
he has such a trashy four on and K option.
Here in the show, we don't love to dump on
specific companies, and that being said, Voya they don't have
(11:16):
the absolute worst offerings in the world, but they're also
far from being the greatest. Their target date funds, for instance,
can cost eight times what Vanguard's does. And so I'm
shocked to hear that the average anal fee in your
plan is north of one and a half percent. That's insane,
it really is, and it's honestly, it's like unforgivable. And
with that, and on top of that, he's got no match,
(11:36):
he's got awful investing options, and so it certainly makes
it seem like that your four on K it's likely
not going to be worth the effort. Like if you
had a match, I think the calculation would be different, right,
We would want you to make sure that you contributed
enough to get that full match, no matter what, because
no fee, regardless of how high the few might be,
(11:56):
even these awful ones from Voya, they can't eat into
your returns enough to overcome a decent employer match. That
match is going to outpace those fees every day of
the week. Yeah, that's right. I mean that's not That's
probably where you want to stop.
Speaker 2 (12:08):
You want to get the full match and then you
want to go invest in another account before you'd even
consider investing more inside of your four oh one K.
But you're right, if there was a match, we would
probably have different advice. But the fact there's no match
that makes it a more interesting decision. And so Steven
said he's maxing out as roth Ira, which is great.
That would be our first piece of advice too. That's
(12:30):
the next best account. And the fact that basically it's
an individual retirement acount, it doesn't matter, it doesn't have
anything to do with your employer.
Speaker 1 (12:36):
You can go wherever you want.
Speaker 2 (12:38):
For folks who do have chrummey four OL and k's
roth iras could be a great first option. Yeah, but
then what I do You mentioned the average expense ratio
of the funds that you have on offer to you
through Voya. After that, I would look and at least
see what the lowest cost funds that you have access
to inside of that four O and K are that's
true because you might find he might find Matt a
(12:59):
reasonably priced total stock market fund or s and P
five hundred fund that comes with an expense ratio below
half a percent, right, and even that is like agree
just compared to Vanguardi Fidelity Standards or Schwab like some
of our favorite brokerages. But if that's the case, while
not ideal, you might still want to contribute at least
some money money to that four oh one K totally,
but only into those specific funds.
Speaker 1 (13:19):
So yeah, you want to target those specifically avoid these
high cost ones. Something else worth mentioning is steam and
do you have access to an HSA Health Samvans account.
That's another tax advantage account.
Speaker 2 (13:29):
Yeah, if you do, that's like triple tax advantaged, and
that's an even bigger tax break. And maybe the cost
or lower inside of that fund. I don't know, it's
at least worth looking, but that could be another account
you maxed out the roth IRA. Maybe the AHSA is
the next account to look to, and then the four
to one K. If we're talking about investing in the
funds that have the lowest possible fees attached them, which
(13:49):
are going to be typically those index funds Matt, that
are probably diversified that we recommend anyway, So you could
opt to go straight into a taxable brokerage account instead,
by the way, but we do you think that the
four to one k makes more sense if they offer
a funder too, at least in that reasonable range. And
for us, the reasonable range means half a percent or less, right,
because the average expense ratio you mentioned is certainly sickening.
(14:12):
Like I wanted to throw up, Matt when I heard that.
It's pretty nasty. But our favorite funds could be at
least palatable, and so it's still hard for me to fathom.
I guess why any employer would pick Voya or a
similar high cost provider. It's probably because they don't know better,
Mattam makes me think about our recent conversation with Dan
Otter when it comes to teachers and what they pay
their crumby four or three to be retirement accounts in
(14:34):
so many cases. But this is I think maybe where
Steven could come in and provide some help if you
wanted to as well. I think it's worth mentioning this
to the human resources department where you work. Yeah, talking
to them about the high fees, the impact that those
fees are costing employees over the years, even though it
sounds like he's not going to be there for long,
like maybe this isn't his long term career home or
(14:56):
anything like that, future employees there are going to be
able to enjoy more of their money thanks to his.
Speaker 1 (15:01):
Actions totally in the fact that he's not going to
be there for very long. I think that's another argument
for possibly going ahead and contributing to the four one k,
because that's I mean, that's going to be fewer years
that you're having to pay that ridiculously high fee agreed,
And then when you part ways, you can always roll
that four one k into an IRA with the low
cost brokerage that you're using for your roth IRA. So yeah,
(15:21):
I think it makes sense to go ahead and take
advantage of the tax incentive to invest there in your
four one k, even though the fees are terrible, And
I think the only reason that we might tell you
to not invest is if you need to just save
up some more cash for grad school. You mentioned you
got that on the horizon for next year. We would
rather see you have more cash on hand to pay
for that degree. So you don't have to take on
(15:42):
student loans at a higher interest rate. I think that's
one potential reason to just invest less overall, so that
you can minimize your debt load moving forward, have keep
that cash on hand, and that's going to give you
a lot more options as well. And then upon graduation,
assuming you have a much higher paying job, well, then
you can really ramp up your investing. Yeah. So yeah,
I think that's how we would approach it. Give it,
(16:03):
you know, if we were in your shoes.
Speaker 2 (16:04):
Yeah, I think if you knew, hey, this is the
employer I want to be at for thirty years. You're
talking about a longer term calculation because you're going to
be in that four one K plan for a long
time to come. But the fact that you're only you're
not going to be there too too much longer. Put
the money in the four one k. If, like you said,
you've got the money to pay for grad school and
you take out ridiculous loans and then just migrated to
(16:24):
a low cost brokerage account once you leave that job,
I think that's a good plan. But yeah, a lot
of moving parts, Steven. Hopefully that helps you make your decision.
Speaker 3 (16:33):
Matt.
Speaker 2 (16:33):
We've got more questions to get to, including one about
a life insurance policy that is terrible. We'll get to
that question and more in just a second.
Speaker 1 (16:48):
Right now, we are back from Lefroic. We've got more
listener questions to get to. Let's hear from a listener
who has been financially hoodwinked.
Speaker 4 (16:55):
Hi, guys, my name is Megan. I'm reaching out because
I heard an improvial episode. You talk about somebody that
reviews like retirement or investment accounts. But my significant other
signed up for an index fund through trans America about
a year ago. We signed up for it under the
(17:17):
impression that there was a cab on both earnings and loss,
essentially thinking that there would be no money lost in
this account. However, we just recently got our yearly statement
and there's only about half of the money that he
had put in throughout the year left in the account,
(17:37):
and it looks like a majority of it has gone
towards fees. We're not really sure at this point if
this was the best route we could have taken, or
if we should close the account. Maybe if we do,
we would be surrendering the account and getting zero dollars back.
So we don't really want to do that unless we
know that it's the right decision to make. However, I
(18:01):
also forgot to mention he's putting in two hundred dollars
a month towards that account, but he also has an
account with my daughter as a writer on it. I'm
not sure if that would be two separate accounts or
if it's one of the same, but he's putting in
two hundred and then he's putting in fifty dollars towards
the account for our daughter. These accounts were sold to
us as though they could be used for life insurance policies,
(18:23):
retirement accounts, a college fund for our daughter someday account
that we could borrow from without any real penalties, besides
having a lower payout once it does come to retirement time.
Speaker 3 (18:35):
I don't know if.
Speaker 4 (18:36):
You've looked into these accounts at all, accounts at all,
I'm sorry, or if you know anything about them. If not,
I totally understand. If you could just give us the
email or the website information of whoever looks into them,
I would greatly appreciate it.
Speaker 1 (18:50):
Thanks bye, Megan.
Speaker 2 (18:53):
This is a great question, and we will get to
the heart of your question in just a bit, but
there's a lot more than we actually have the ends.
Before we get to the specific part of your question.
Speaker 1 (19:02):
Let's address a lot of what Megan is talking about.
Speaker 2 (19:04):
Okay for the listeners, and I'm so sorry to hear
about what's happened to you in this investment endeavor. But
first things first, this is not a retirement account that
your significant other has been contributing to, and you have
not been investing in a straight up index fund like
you've been told if you if you had been via
a traditional retirement account, if you had been investing in
index funds recently, even if it had higher than normal fees.
(19:25):
We were just talking about fees, Matt, and how that
can impact your decision which accounts you're going to go in,
what funds.
Speaker 1 (19:30):
You're gonna choose.
Speaker 2 (19:31):
Well, even if you'd been paying exorbitant fees in an
index fund, you would still have seen your balance increase
substantially just because of what the SMP has done over
the past.
Speaker 1 (19:41):
Year, right, at least twenty percent more over the past year,
and like so fee well feel minimal, Yeah, over forty
percent over the past two years. Yeah, So if you're
not what you were expecting to see. I'm sure based
on what you've seen reflected in the market.
Speaker 2 (19:53):
Exactly so obviously disappointing, frustrating, and somebody's asked the suplaining
to do right. As Lucy would say, but this sounds
exactly like an indexed universal life policy to me, Matt,
the fees, the commissions, they are a dead giveaway. It's
one of our absolute least favorite financial products because it
attempts to combine things that shouldn't be combined. Life insurance
(20:15):
and investing. Those are both great and necessary things for
adults to do right, to have money going into index ones,
to have life insurance, to cover your family in the
event of your potential early death. But combining both of
those things is a recipe for disaster. As sadly Megan
has sounded.
Speaker 3 (20:32):
The hard way.
Speaker 1 (20:32):
Yeah, it's like me in college when I decided to
make a sandwich smoothie. I've ever told you that story,
I really, I haven't. Sounds like a wreck, Oh it was.
I got into I never made smoothies my entire life,
and then would you put a sandwich in the blender? Yeah, okay,
it was terrible nasty because I was thinking, Okay, I
love smoothies. Yeah, Oh, I love sandwiches. What if I
made a sandwich smoothie, Yeah, it tastes like vomit. The
(20:54):
two things on their own fantastic things to consider. Combine,
they're awful.
Speaker 2 (20:58):
If I'd known you back then, I could. I told
you from personal experience. It was a bad idea because
when my sister had jos surgery back in the day,
I had to blend everything just to get food in
her mouth. If asially hated that there were some nasty
things that they put in that blender.
Speaker 1 (21:10):
Well, if it was just a sandwich and like ice
or water or something, I think that'd be one thing.
But I added milk and banana because it's like, well,
you always start every smoothie with a milk and a banana. Yeah,
and yeah, that was a massive mistake. Me learn from math.
People don't make a sandwich smoothie and don't combine life
insurance and investing. It's funny. Well I shouldn't say it's funny.
(21:32):
But Megan, she said that she wasn't supposed to lose
any money. Well, Megan, you didn't lose any money. You
paid fees. There's a difference between having lost money in
the market versus like paying for a service that feels
like you totally got taken advantage of because you didn't
take advantage of the service, right like you didn't have
to use your life insurance, which is obviously a good thing,
(21:53):
but you didn't actually lose money. You paid that money
in fees towards this financial product that you didn't need.
Speaker 2 (21:58):
And that's typically one of the selling points of these products.
Matt is, Hey, no downside risk. We cap your downside risk.
So if the market tanks, guess what your the value
of your policy isn't going to tank, and that feels
really good.
Speaker 1 (22:09):
But then your upside is capped. The fees are high.
That's what makes these things so egregious. Plus they taught
all the different benefits and they make it sound like
this Swiss army knife like financial product. But we want
you to avoid this, and for everyone out there who's listening,
obviously we want you to avoid it. But for Megan,
the next thing that you want to do is stop
contributing to this account as soon as possible. We don't
(22:30):
want you throwing good money after bad But then, okay,
so you'll stop doing that, But then should you close
the account? Altogether. And because of how new this policy is,
it sounds like you've only maybe have had it around
for just like a year. I think the likely answer
is going to be yes. If you took out this
policy let's say ten years ago, like over a decade ago,
(22:50):
that's where the water gets a little muddier. The pros
the cons they become a little more complex. But given
especially how fresh it is and how early it is
that you caught this problem, which I'm so high to
hear about, I think it makes sense to just axit
completely before you lose any additional money.
Speaker 2 (23:06):
Yeah, and she asked specifically about someone to review this account,
and yes, we have talked about that in the past. Like,
you can certainly go that route before canceling your policy.
You can do that via the site evaluatelifeinsurance dot org.
So I think that's kind of the heart of what
you were trying to get to. Evaluatelife insurance dot org
is the website you can have. You can pay one
(23:26):
hundred and fifty bucks to a life insurance expert. His
name's James Hunt used to be the insurance commissioner for
the state of Vermont. I want to say, but you
pay him one hundred and fifty bucks. And this is
I mean, honestly, what it takes to go through these
documents and stuff, that's very little to have someone review
your complicated, trashy life insurance policy. But the truth is
kind of basically what Matt was saying, it might not
(23:46):
be necessary to even pay one hundred and fifty bucks
to know whether or not you need to cancel this
policy because the waters aren't money a year in.
Speaker 1 (23:54):
It's pretty sumy policy. Yeah, at least us what it
looks like you should be doing at this point.
Speaker 2 (23:57):
Yeah, I mean, the longer you've had the policy in place,
the more difficult the decision becomes. Making his insight more valuable.
But in your case, it might not be necessary at all.
We're so early on to this, and it sucks to
chalk up your lot to like wipe your hands of
this thing and realize that you lost hundreds and hundreds
of dollars, maybe even a little bit more than.
Speaker 1 (24:15):
That, better than thousands and tens of thousand dollars.
Speaker 2 (24:18):
Though exactly better than lighting more money on fire and
throwing it into this policy.
Speaker 1 (24:22):
Totally, and then moving forward, we would recommend that you
just get a simple term life insurance policy for both
you and your significant other. It's going to cost you
far less on a monthly basis. It's going to offer
you financial protection. Of course, if one of you were
to pass away prematurely, want to say, it's like fifteen
times less the average cost of its indix universals vanely
more affordable. And then you take all those dollars that
(24:44):
you're now saving from that egregiously extensive piece of junk
life insurance policy and then to stick it into a
workplace retirement account if you have one that's offered by
your employer, or simply stick it into a roth IRA
with a low cost provider. Then later down the line
you can think of about a five twenty nine plan,
because it sounded like that was something that maybe maybe
that kind of sold all on it because it's like, hey,
(25:05):
this is this can be for y'all. But if she
ends up going to school and you want to pay
for higher education, you can do that as well. So
I'm guessing that that is on your mind. Look into
five twenty nine plans, but don't prioritize like that's the
cart that should be behind the horse, and you don't
want the cart to get ahead of the horse here.
You want to make sure that you've got your financial
priorities in order.
Speaker 2 (25:24):
Yeah, and Matt, you mentioned it's kind of like a
Swiss army knife type product, and I think that's true.
But also think about this. The Swiss army knife is
nice to have in a pinch, But let's say you're
in your kitchen. You're not chopping up vegetables with your
Swiss Army knife. Let's say you're trying to simply want
a chef'sne open a wine bottle at home, like, you're
not doing that with a Swiss army knife. You have
a dedicated bottle opener for that, and not likely it. Yep,
(25:45):
the Swiss Army knife is.
Speaker 1 (25:46):
The chef's knife for the veggies, and then you got
the wine opener for the wine bottle. Yes, you don't
need the mcguver No. Fifty six gadget red pocket knife
to to whip out in a pinch exactly.
Speaker 2 (25:56):
And so we're saying that there is a much better
option for every single one of these things you want
to do, and you don't need a one size fits
all solution. And in fact, the one size fits all
solution is the most expensive worst thing for you. In fact,
there are different products that are best for each one
of these pursuits you are trying to attain in your
financial life. And it sicks me map that there are
(26:18):
always folks out there who are trying to take advantage
of the complex financial system and the myriad products that
are offered. These universal index life policies are always sold,
They're not bought. Megan mentioned that she said she literally
said this was sold to me, And I think that
is what happens with most of these policies, that someone
who stands to benefit make a large commission is trying
to sell these products, not because it's what's best for you.
(26:40):
They have a great marketing campaign to try to tell
you that it is. That doesn't mean that it is.
She didn't think she needed one of these policies until
someone came to tell her about it. And it sucks
right that to see the money that you've been sucking
away blow up in a cloud of smoke. I hate
that for you, Megan. But if you fall prey to
the sunk cost fallacy and you keep pumping money into
this account, your results are going to be worse over
(27:01):
the long haul. So it's time to kind of cut bait,
and for everyone else out there, beware of folks selling
you a too good to be true financial product. They
end up being the worst. We talk about all sorts
of different financial products on this show, but really it's
really within a narrow band, I guess, Matt, because there
are so many other financial products on offer we don't
talk about very often. I'm glad we got to highlight
(27:22):
this piece of crap one because I know there are
a lot of other people hearing pitches for it, and
in Megan's case, she caught it early, and hopefully in
the case of other listeners, they know what to avoid
now from the get go.
Speaker 1 (27:32):
You know it, buddy. All right, let's now hear from
a listener who's considering investing in an emerging alternative investment.
Speaker 5 (27:41):
Hey, Matt and Joel, this is justin from Manson Iowa.
I love the show.
Speaker 1 (27:45):
Thank you for.
Speaker 5 (27:45):
Sharing your practical wisdom for us. I've been learning about
carbon credits and the emerging carbon credit space, and to me,
it seems like an opportunity for some good returns if
I can figure out the best way to invest in
(28:06):
this space. And I came across Carbon Mutual funds and ETFs,
and so I was wondering, what do you guys know
about carbon mutual funds and ETFs and would you have
any that you would recommend?
Speaker 1 (28:19):
Thanks, Mat, I feel like we're hearing more and more
questions from people who are trying to find some sort
of investing magic right outside of maybe some of the
meat and potatoes things that we recommend. True, I thought
you were going to say, there's more and more folks
who are trying to take advantage of global warming and
trying to path the retireative.
Speaker 2 (28:38):
Exploit the dying world to their financial benefit. Let's hold
about that's not the case. But I think what's so
fascinating so much of the time when people are trying
to do that, when that is the question and this
might not be the case for you justin I'm not
trying to throw you into the bus here, but so
much though, I frequently see when people are asking about
investing in alternative assets or they're attempting to find higher returns,
(28:59):
they want to juice those returns so that they're able
to see their account balance grow more quickly. Well, oftentimes
what they're trying to do is compensate for a more
meager savings rate. Right, they're trying to do more with less.
They want that balance to shoot up, and so they
opt to take more risk than make sense for their
financial situation. So I get looking for outsize returns and
(29:20):
sexy places. I get the draw to do that and
to maybe look further afield to see if you can
find something that's going to provide more financial benefit for
every dollar you're investing. Specifically, justin you mentioned carbon credits
and carbon credit ETFs. Well, when you invest in those,
you're hoping that the demand for carbon credits from companies
that pollute more goes up so that the price goes up. Right,
(29:41):
That's how you make money, and it can certainly work,
but it wouldn't be my first choice. You might be
one of those folks who has a baller savings right,
who is saving a significant portion of their income. And
maybe this is just a side thing that you're trying
to do with the small portion of your portfolio. Maybe
you're just trying to increase your investing savviness. But savings
rates this trump investment returns, and that is also the
(30:03):
thing you've got more of an ability to control. So
just make sure you're not one of those folks who
saving five percent of their income and try and find
to find ways to increase your returns. Make sure that
the savings rate is what you're focusing on the most,
and that this is really a sideshow more than anything else.
Speaker 1 (30:17):
Sure, so I will up put one caveat on there
that the savings rate trump's your rate of return, particularly
if you are a younger investor, because guess what, your
investments are really small and to see something change from
I'm just earning an average seven to eight percent or
let's say twenty percent, like maybe you've experienced over the
(30:38):
past year. Well, if you've only got ten twenty thirty
thousand dollars invested, that doesn't really matter all that much,
as opposed to getting a promotion at work and all
of a sudden, boom you got like a thirty thousand
dollars raise or something like that, and the ability to
pretend that doesn't even exist and you don't inflate your
lifestyle and all of a sudden you're s socking away
all this money. That's when your savings rate has a
massive impact. But then if you think of somebody on
(30:58):
the other end of the spectrum, you know, let's say
they're retired, that they're working a little, working part time,
but they've got a million plus invested. Well, of course,
returns have a much bigger impact on basically the larger
your portfolio gets. But I'm guessing, justin just based on
how he was asking it, that he might be a
younger investor. He may not quite have as much invested
(31:19):
in the market. And for you, man, I hear you,
I think it can be discouraging, especially early on, to
be like, man, how come my net worth isn't really growing,
you know, as opposed to like you get to a
certain point after you've been investing for a long period
of time. That time in the market has a massive
impact on your ability to eventually see your net worth grow. Yeah,
(31:41):
and it's just a lot more I don't know, rewarding,
fulfilling when you log in maybe after you've been investing
for a couple decades, to see, oh wow, yeah, the
market's up a whole lot. The market is doing more
for me than I can do for myself. And that's
incredibly fun, I'll be honest, But I also remember what
it felt like early on, when it's just like, all right,
socked another five dollars away. Am I rode a Yes,
(32:02):
five thousand dollars richer this year, But don't discount I
guess the habits, the behavior, the discipline that you're building
by setting that money aside, because over time that's going
to grow into I mean that that's the seed that's
going to blossom into this amazing flower of retirement for you. Well,
the other I like that analogy.
Speaker 2 (32:18):
By the way, the other thing that's happening, Matt when
you're looking towards other ways of investing, oftentimes you're talking
about higher levels of risk, right, And there's always risk
in investing. There's also risk when it comes to not investing, right,
and that's a known quantity risk of inflation.
Speaker 1 (32:36):
Right.
Speaker 2 (32:37):
But that also doesn't mean that we need to invest
in super niche ways to try and juce our returns.
Let the process, I think is what you're saying, basically,
at dollar cost average and time in the market do
its job. My guess is that that Justin hasn't seen
much out there on this topic of investing in carbon
carbon credit. There's not a whole lot out there on
the subject, and that's because it is truly incredibly niche,
(32:59):
right and It's been said that finding finding a niche,
I guess, if you want to pronounce it that way,
will make you rich. And that might be true in
some case. I think it's maybe more they're true in.
Speaker 1 (33:08):
The niches, are in the niches. Yeah, yeah, they're going
to go with a niche prencia, right, I think that's more.
I think that's more about being like a top one
percenter in your profession than investing in off the wall things.
But I see the attraction that I see why people
want to do that. I guess you just have to
know that the greater the risk you're taking on you
could see outside returns, you might also see the opposite,
(33:28):
and that's a big risk.
Speaker 3 (33:29):
Ye.
Speaker 1 (33:29):
Well, and these these carbon credit ETFs are expensive as well.
That's an important part of the investing decision because one
of the main problems with funds that allow you to
invest in carbon credits in futures is the expense ratio
that they come with. The most popular ones out there,
they've got an almost zero point eight percent expense ratio,
and then on top of that they've underperformed a diversified
(33:50):
mix of stocks by quite a bit in recent history
and of course past returns. They're not indicative of future results,
but it is really hard to overcome the much higher
guaranteed expense that you're gonna pay no matter what, and
that's locked in, yeah, no matter exactly. And if you
look back a little bit, like when these funds were
first announced, they seem to have done pretty well, like
(34:13):
they're but it's because they're hot. They're new on the scene.
Folks are thinking, oh, this is gonna be the next
new thing. But since then, it's like, well, not totally
sure what's gonna come of these carbon credit ets. They've
certainly tapered off, and I think there's the juries out
as to the success and the sort of viability of
the carbon credit market and whether or not that's something
that countries even continue to do. Like if you're looking
(34:36):
at it from an environmental standpoint, it's it's not certain
either because some folks have they've caught it essentially like
a license to pollute, right because before maybe before it's like, well,
there's like a pressure to find cleaner energy sources or
to pollute a little bit less. But then when the
carbon credits come on the scene, it's like, oh, okay,
well we can we can do whatever we want and
we'll just buy the carbon credits. It sort of relieves
(34:57):
them of their guilt. Yeah, They're ins are cleared, and
so that's one of the things that makes me a
little more skeptical as to the effectiveness of carbon credits
and then ultimately the future of the carbon credit market. Yeah. Well,
and you mentioned kind of when they first launched on
how they were kind of sexy and people are investing
in them. It makes me think of when a stock
debuts on an exchange. Makes me think of a company
(35:20):
like Rivian love their vehicles. Guess what if I had
invested ten grand in Rivian just because I thought their
vehicles were sexy, Well, I'd have about two grand right now.
I'd be much further away from my goal of buying
a Ribbean eventually actually owning a Ribbian.
Speaker 2 (35:33):
Yes, so just because and think about what the stock
did on the first couple of days. I mean it
was people were riding high on Ribbian, and that that's
the case for a whole lot of stocks. When they
make their debut on an exchange, there's a lot of
people are ecstatic and there's a lot of energy surrounding
that stock. A lot of trading that stock, and then
eventually the fundamental starts to take over and people are like,
does this company make cars that make money? And the
(35:55):
answer for Rivian has been no. They make beautiful cars,
but they don't make money yet, although they've got more
time to burn cash thanks to that new infusion from
VW Right. But the options are limited for carbon credit
investment exposure.
Speaker 3 (36:09):
Right.
Speaker 1 (36:09):
There are a.
Speaker 2 (36:10):
Few ets, Matt, you mentioned that they are, they're kind
of expensive. There are a couple of them, but they're
just there aren't many. So the next I think important
thing to mention here in the answer to this question
is the importance of simplicity. We're not necessarily against sector
investing or having some exposure to single stocks, but only
if it's confined to a small percentage of your portfolio. Right,
(36:31):
Let the incredibly boring stuff do the heavy lifting for you.
The fun stuff, meme stocks, random crypto coins, short selling
whatever stock you think is going to go down in
the near future. Sexy alternative investment choices. Those are spicy,
they can be fun, and maybe it's more interesting to
pay attention to and to mess with. But if the
(36:52):
goal is building wealth, that's really the opposite of what
we want to be doing. The boring thing is getting
us where we want to go, and this other stuff
is probably more of a distraction. Is it going to
provide higher returns? Maybe maybe not, But I can tell
you for a lot of people, it's going to distract
you from the main goal totally.
Speaker 1 (37:09):
Yeah. And to continue my skeptical rant, another potential downside
are the different changing government regulations on the carbon credit front.
Government interference, They can change things overnight. Just think about
the different tech companies and Europe, the EU, they've held
a microscope to companies like Facebook and Apple and how
it is that they're handling data. Not that those companies
(37:31):
don't deserve regulation or some sort of oversight, but it
would just give me some pause before I decided to
invest a major chunk of change into aside from even
carbon credits, even into a single tech stop for instance.
And so diversification owning tech companies, owning those within the
confines of an index fund, like it's going to give
you access to the upsides while limiting the downside possibilities.
(37:54):
This is personally, This isn't something like there is some
single stock investing that I'll do. There is some crypto
thing that I'll do. But when it comes to something
like this, it just feels it feels way too fresh,
way too wild wild West for me to want to
put any money towards. Even though you might love the
mission or and the idea, the ability to commoditize and
create a market for incentivizing companies to polute less, I
(38:17):
still think, I guess I think there might be better
ways of using your dollars to sort of fund that
kind of initiative and that kind of good without actually
buying carbon credit ets, without mixing your investments with the
good that you're looking to accomplish in the world.
Speaker 2 (38:31):
Yeah, there's this concept of core and explore that the
massive chunk of your portfolio that's the core, and that
you're exploring maybe a couple of little rabbit trails off
the side, with a small percentage of your investable assets.
I think that's totally fine. And if this is the
thing you want to explore with a couple percentage points
of your overall portfolio, more power to you. I just
(38:52):
wouldn't put too many eggs in that in that basket,
and I wouldn't expect that's going to make you rich
in comparison to their tried and true path. Where are
you going to funnel the majority of your assets?
Speaker 1 (39:01):
Yeah? Honestly, to me, it almost makes like bitcoin seem
like safe and conservative and non volatile, just because it's
just been around long, which it's never been called that before, No,
not in a history of bitcoin.
Speaker 3 (39:12):
Yeah.
Speaker 1 (39:12):
All right, we'll take a quick break, and after that
we'll hear from a listener who feels like his opportunity
to purchase a home that it is slipping through his fingers.
We'll get to that more right after this. All right, Matt,
we're back. We've got more questions to get too.
Speaker 2 (39:33):
In fact, a couple questions from the same listener who
sent us an email recently. This comes from a listener
pool Kit, and he says, my initial plan was to
buy a home, and it's why I have one hundred
and thirty thousand bucks in liquid cash. But then COVID happened.
House price is skyrocketed. We all know that at this point, right,
he says, After that, interest rates have gone up, so
I'm priced out of the market. I'm planning on maxing
(39:54):
out my retirement accounts this year. Should I still keep
that much cash liquid in my high yield savings account
or should I invest it? I do want to buy
a property in the near future if the rates come down.
Would love to know if non HOA properties are a
good real estate investment as far as being a primary
residence or a rental property. Also, I'm always anxious about
my investments in my retirement brokerage accounts, whether they are
(40:14):
diverse enough and if the expensory show is too high.
What's a good resource to use for my rate my portfolio?
Speaker 1 (40:20):
Type of thing.
Speaker 2 (40:21):
I tried reading on Reddit, but it's too much info.
We've all been there by the local game. Reddit can
be so helpful, it can also be like overwhelming people
battling it out, a lot going on, too much to
take in. Sometimes I totally get that sentiment.
Speaker 1 (40:35):
Yeah yeah, yeah, So we've got several questions to get
to here. Let's talk about the housing part of his
question first, which is a tough one, and I think
Polkit finds himself in a situation that many Americans have
found themselves in. Right, They've been saving diligently, they want
to buy a house, but then it feels like their
cheese had moved the finish line. It got pushed out
a whole lot further because we've seen prices increase, we've
(40:57):
seen interest rates escalate, and now they're wondering if they
should throw in the towel. Well, I think the key
to our answer for polkit is when he said, I
do want to buy a property in the near future.
So that's key. And if rates come down, and we
got to say, we can't guarantee that rates are going
to come down, nor can we guarantee that if they
(41:17):
do that, you'll see prices home prices go down simultaneously,
and in fact, I think we are likely to see
the opposite, because folks are calculating financing into what it
is that they can afford, right, and so if all
of a sudden, oh, well my payment is dropped by
one thousand to fifteen hundred dollars, maybe even two thousand dollars, well,
they're thinking, well, that means I can afford more house.
And I think that, honestly, I think that's going to
(41:39):
significantly drive up prices. Not that I'm making any predictions either,
because it seems that housing generally speaking might be a
bit overpriced.
Speaker 2 (41:47):
A lot of people have assumed, and I think wrongly
Matt that the rates coming down means greater affordability in
the housing market. That might be true, but it also
could drive prices up so substantially.
Speaker 1 (41:57):
I think it will that. Yeah, it might oh true,
all right.
Speaker 2 (42:01):
And the fact is buying a house and as being
a near term goal, I think that means that you
should keep socking money into savings for that down payment.
Speaker 1 (42:08):
Yep, you said you still want that as a goal.
As a near term goals, that's the thing. And if
you're talking about something in the near term, yep, that's
not money that you want to stick in the market.
Speaker 2 (42:16):
And markets are obviously hard to predict. There's only so
much within our control as savers and investors and want
to be homeowners. But we have seen a noticeable slowdown
at least in price appreciation. Right, They couldn't keep going
up at the rate forever, outstripping real income numbers. And
I just think I think pool Kit should stay the course.
He's been investing regularly in addition to saving for that
home purchase. He says he's going to max out his
(42:37):
retirement accounts this year.
Speaker 1 (42:39):
I would say, as.
Speaker 2 (42:39):
Long as you're not abandoning that in order to pad
that savings more quickly. Then keep saving for the down payment,
keep making that a high priority in your life. You
never know when the right opportunity might come along. You're
gonna want to be ready to pounce, even if it
means substandard returns for some of those dollars in your
highyield savings account.
Speaker 1 (42:56):
Yeah, in this case, full optimization of every single dollar,
it's not possible. But what you're doing is you're protecting
those dollars for one of the biggest goals in your
life and for one of the biggest expenses that you're
going to ever experience. But then you also asked about
investing in a non HOA property, which I think could
be a good thing or it could be a bad thing.
Because the because I think he's the way he posed
his question is that he is assuming that an HOA
(43:17):
is a good thing, right, because it essentially protects your investment.
It's like, all right, we don't have the house that's
in shambles two houses down that's driving down the value
of every house in the neighborhood Christmas in July, right exactly.
But simultaneously, I feel like it sort of limits. What
it does is it removes like the extremes, because I
think that that's also going to mean that you're also
(43:39):
not going to you may not see as much appreciation
because there aren't folks who are kind of going above
and beyond when it comes to what it is that
they're looking to get out of their house, which might
drive values in the surrounding area up. And so so
much of it I think comes down to your specific market,
the specific neighborhood that you're looking at, and how that
is going to impact that specific property as an investment.
(44:00):
And that's assuming, of course, that you're looking at this
through an investment lens, which is what you're doing. But
polkett I would say to make sure that you're also
looking at this from a personal from a lifestyle standpoint,
because like overall, like when you look at real estate,
over the past one hundred years, primary residences have vastly
underperformed the market overall, and so if you're looking at
(44:21):
this purely from a financial standpoint, it doesn't make a
whole lot of sense. But you buy a house because
you want to stay in the area, because you love
a certain neighborhood. Okay, maybe you've got friends in the area,
and that kind of thing as opposed to looking at
it purely from a financial standpoint.
Speaker 2 (44:34):
Yeah, I will say hoa's can be a hornet's nest
of rules, fees, and hassholes.
Speaker 1 (44:39):
You have to watch out for that. You have to
know the you know what you're getting into.
Speaker 2 (44:42):
Yeah, the financial abilities of that HOA getting levied with
like a special assessment can be pretty frustrating, can be
incredibly costly. So how much savings does the HOA have
on hand? Is there any deferred maintenance that they haven't done?
You want to answer to some of those questions before
you buy a home in an HOA community, So yeah,
I would at least think about that. And your last
(45:03):
part of the question, you said, is there a place
to get your portfolio rated? I like the idea, but
there's nothing that I know of besides hiring a financial
advisor and having a conversation. The main reason I think
a product like this probably doesn't exist is because our
financial status and our goals have so much to do
with the suitability of our investment choices. But you could
totally hire someone in The two places we'd probably recommend
(45:23):
are Nectarine or Domain money. There are two different types
of low cost advisor services that would say, go to
one of those two services in order to get some feedback.
If you're losing sleep, you're overly anxious, that can help
take some weight off your mind. Having that second set
of eyeballs from someone who eats, sleeps, and breathes money,
who helps people out to reset their financial goals all
the time. And I think Polkit is at least in
(45:45):
the financial position based on what he saved and invested
to be able to fork over the money to get
that second set of eyeballs. I don't know of any
sort of like algorithm or fintech product that's going to
do that for him, but I do think like a
personalized service could make sense.
Speaker 1 (45:59):
Totally, and I think that that would be money well
spent for him specifically. Yeah, but all right, let's get
to the beer, Joel that you and I enjoyed during
this episode. This was a whipped pineapple Goes from Westbrook
Brewing Company. What did you think, bud Man? I liked it.
Speaker 2 (46:15):
The label says sweet, sour, and tropical. It was all
the above. It had like vanilla and pineapple, and for
some reason those things mixed together incredibly well. You dig
it and Westbrook is just a top notched brewery located
in South Carolina over.
Speaker 1 (46:31):
There in Charleston Mount Pleasant, to be.
Speaker 2 (46:33):
Exact, And this is a pleasant beer, Matt. It's I
think one of my favorite beers I've ever had for them,
I really love.
Speaker 3 (46:39):
Yeah.
Speaker 1 (46:40):
Wow, would you think I dug it? But I guess
I was. You know, when you lead with sweet, sour, tropical,
so you lead with sweet, like those are the descriptors.
I expect it to be a little bit sweeter. You
shouldn't be surprised that you wanted it. So, Yeah, it
was like p some sugar in this thing. It has
some tartness going on, and it certainly had that pineapple flavor,
but you know what it kind of felt like, But
(47:00):
it kind of tasted like was a pineapple that wasn't
quite ripe, that was wasn't quite fully right. But I
was expecting like a little more backbone when it co
when it comes to my tropical cocktails, Oh it kind
of it does. It kind of makes me think of
like a rum cocktail with a pineapple and the additional
kind of like tropical flavors. Yeah, it's like the beer
(47:21):
you drink at in the Dominican Republic for sure. Absolutely, Yeah, Yeah,
but yeah, maybe I shouldn't expect all that sweetness out
of a goza because those are Yeah, they are typically lighter, but.
Speaker 2 (47:29):
Their original goza still so fantastic. It's it's like briny,
great stage.
Speaker 4 (47:34):
In the mouth.
Speaker 1 (47:35):
I picked up a whole lot of briny with this one. No,
I didn't have nearly the same compared to the compared
to the original. Yeah, but still glad we got to
enjoy it. I agreed.
Speaker 2 (47:44):
That's going to do it for this episode. We'll have
links to the show notes. Some articles actually the correspond
to some of the things we talked about in this episode.
We'll have those up in the show notes at howtomoney
dot com. There's a lot of other good stuff up
there too, including our credit card tool. If you're in
the market for a new credit card and you're trying
to figure out, well, which one is the best one
for how I Spend, you got a Hada money dot
com In the top right hand corner, you can find
(48:04):
the credit card tool right there, super easy to use.
Speaker 1 (48:07):
Hopefully it helps you out. Matt.
Speaker 2 (48:08):
That's going to do it for this one. Until next time,
Best Friends Altum, best Friends Out
Hosts And Creators
Joel Larsgaard
Matthew Altmix
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