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The Healthy Wealth Experience - Where Financial Success Meets Personal Wellbeing
Host Chris Hall combines 30+ years in finance with wellness expertise to help entrepreneurs and professionals build wealth without sacrificing their health. From investment strategies to money management, we offer advice to make financial success more sustainable.
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The government's not super efficient with our money. And, I do believe that we should, you know, have fire and police and good roads and things like that. So I'm gonna pay the tax bill, but I'm not gonna give them a bonus and I'm definitely not giving them a tip. This episode is for entertainment and information only. The opinions expressed are not professional advice and listening does not create a client relationship.
Speaker 1:Always consult your own qualified professional before making any financial, legal, or health decisions. Welcome back to The Healthy Wealth Experience. I'm Chris Hall, and today it's just me and you. Here's the deal. I got in this business because I love helping people keep more of their money.
Speaker 1:Whether that's a 25 year old opening their first Roth IRA or a small business owner who's been overpaying on taxes for years and doesn't even know it. That's what fires me up. And I realize I need to be doing more of this on the show. So consider this episode one of a brand new series where I'm answering the questions I hear the most in plain English, no financial advisor speak. This is the stuff I wish someone had told me ten years ago, twenty years ago, probably thirty years ago.
Speaker 1:Anyway, let's dive in.
Speaker 2:Hold
Speaker 1:on. What's the actual difference between a Roth IRA and a traditional IRA, and how do I know which one is right for me? This is a question I get, like pretty much every week. So the real thing to think about is, is you're going to pay taxes period. The government's going to get their share.
Speaker 1:They're going to get their pound of flesh. So you have to decide when you want to pay the taxes, right? So I typically will do a thing with people and I say, okay, you have a dollar, then you have $2, then you have $4, you have $8. Which one do you want to pay taxes on? Typically speaking, people will say, well, I want to pay taxes on the $1 Well, if that's the case, then they are looking at a Roth IRA or a Roth.
Speaker 1:Okay. Which means I'll pay the taxes now, put it in after I pay the taxes, grow it then. And then over the course of that growth, all that growth is tax deferred growth. And then when you pull it out later on in life, it's tax free. So you're going to pay it now.
Speaker 1:And then later on, you don't pay taxes after it's grown or you're going to defer it because you really need that tax break right now. And then if you defer it, you need that tax break now, then you're going to definitely pay it later on. That's more of traditional IRA or a regular four zero one ks or four zero three B, etcetera. And so it really does depend on where you're at, but I would just tell you that unless you're like in some ridiculous tax bracket, like a small business owner who's making $400,000 a year after expenses, I would say like, just pay your taxes now, pay them now, get it over with. The other question I often ask people is do you think taxes will be higher or lower twenty years from now?
Speaker 1:And the answer is pretty obvious. It's probably going to be higher. So that's the world we live in. So I keep hearing I should start investing early, but what if I'm starting late? Am I already behind?
Speaker 1:And what do I do about it? Also a great question. I would say that most people probably don't get into investing or saving for their retirement until they get probably into their late thirties, early forties. That, and that is an issue, right? Because the power of compound interest, the sooner you get into it, the better off you are.
Speaker 1:There was actually some math done where if you would take a kid brand new born one day old, and you put $6,500 like a, like a Roth IRA type of a thing, and you would just put that in there and nothing else that you could eliminate social security, that everybody would have enough money in retirement to live off of that you wouldn't even have to have social security. So the sooner, the better. Obviously, if you're a parent and you're making really good money and you want to defer some of it to tax wise, can always put your children on payroll and then you can put money from their earned income into a Roth IRA. Then they can start saving earlier. Of course, they there's some caveats to that as well.
Speaker 1:That's kind of important stuff to like, I wouldn't dive as deep on that right now as I could, but that is like probably like a whole messaging in itself. But I would say like, you know, starting as early as possible is the important thing. You know, I think a lot of people, especially young people, they get out of college. They're like, I want a better car. I want a better apartment, or I want to buy a house.
Speaker 1:And they start putting all this, you know, heavy, heavy bills on. And if they were to take that same amount of money that they're making straight out of college and start pouring it into the market and through a four zero one ks or through a Roth IRA, or just plain investing in a brokerage account. And if they were to do that and then kind of like put off till 30 to buy the nicer car or to buy the nicer apartment, etcetera, they'd be worlds ahead. In fact, most people, if they really, really poured all their time, energy, and money into investing in their twenties, would probably never have to invest again because of the power of compound interest. But if you are starting later and you're listening to this right now and you're in your thirties or you're in your forties, it's not too late.
Speaker 1:You just have to put more money in because you don't have the compounding effect that you get when you're younger. So it's not that you can do it, but you have to be disciplined. Right? So if you're 20 and you put $50 a month away, that's fine. There's nothing wrong with that.
Speaker 1:Right? I always tell people when you go to the gym, you don't like put 400 pounds on the bar and just go for it. Right? First thing you had to is lift the bar. So $50 a month is perfect for someone who's just starting out.
Speaker 1:But now if you're like in your late thirties, early forties, and you're like, Hey, I need to start with, you know, dollars 50 is not going to do it. You're going to have to really put some weight on that bar. And that's the way I would say that. So what's the difference between a four zero one ks and an IRA? And can I have both at the same time?
Speaker 1:The answer is I'll just answer the last one first because that's the easiest. Absolutely. You could have both. There are some income requirements. So in other words, if you make a ton of money, and you have four zero one ks, then there's going to be some like requirements on whether you can invest in an IRA.
Speaker 1:But for the average person, especially someone who's new to investing, that's probably not going to be an issue. K is considered, it's a part of the tax code. That's the section is the. Okay. Is the section, but that part basically is a business retirement plan.
Speaker 1:So like if you work for a company or you own a company, you can do a business retirement plan. The idea on that is if you're a business owner, let's say in this case, were an employee, right? So your business owners put together a four zero one ks plan. You're able to participate in it. Pretty much guaranteed that they're going to also participate.
Speaker 1:So in other words, like if you put money in, they're going put some money in, it's called match. And so typically speaking, like you're looking at like a three to 4% match. So if you make a $100 a year and you're investing in your four zero one ks and you're getting a 4% match, you get $4,000 put into your four zero one ks from the employer side. And of course, whatever side you're putting into. So that's something I tell people like that's the basic 101.
Speaker 1:If someone's willing to hand you free money, you should take it. Right. And then with the IRA that's stands for individual retirement accounts. So that's a retirement account that you would have as an individual and you can't have both. So you could max out your four zero one ks and then you can also max out your IRA and they're just completely considered separate from each other.
Speaker 1:What I, what I would say is this in step planning, typically what we'll say is like, Hey, get to your K first, get all that match. Right. And then after that, you know, if you have the ability, I would say probably put it into like a Roth IRA. And then once you max that out, then you can go back to your four zero one ks and start putting more money away in that too. And by the way, most K plans have a Roth option now.
Speaker 1:I would, again, going back to the question earlier, I would a 100% say if you can get a Roth option, do it. Pay the taxes now. Don't pay them later if you can. But last but not least on that thing, would say with the Roth four zero one ks too is that your employer may not have a Roth option. It's very simple for them to change that.
Speaker 1:They can go to a, what's called a TPA third party administrator and say, Hey, I want to change my documents to say, to allow for Roth. Then they call the company that does the plan and the plan changes it. So it's very simple to change. If you don't have a Roth option, it's probably because your four zero one ks was started quite a while ago. Stocks, bonds, mutual funds, ETFs.
Speaker 1:Can someone explain what these are in plain English and why I should care? So the first one is like explaining it. This is where financial jargon comes in. And I think it's really hard for most people to like stay away from the jargon. And so that's what makes it confusing.
Speaker 1:Cause if you're not in the business, what's the difference? Right. So I'd say in general, the average investor is going to be investing in companies. Right. And then, and so like how you invest in those companies is, is different, right?
Speaker 1:So you can invest in a stock, which basically means that you're buying a portion of that company specifically. You can invest in a mutual fund, which is a gathering, like a pool of investments, and they all are still parts of companies that you're getting an investment in. Same thing with an ETF. The only thing with an ETF is is that instead of having like a a full on management team, like, you know, I would say, you know, they have probably like, they do have a still like a committee and a management team, but the average transactions are being done through an algorithm instead of like, you know, people getting up in the morning and going to buy this and sell that and buy this and sell that, which is more like the mutual fund side of things. Bonds are fancy word for a loan.
Speaker 1:So if I loan you money, right? Then they say, Hey, I want 6% interest. And then I want the money back in five years or ten years. That's a loan, right? Well, when you do it to a corporation, that's a bond.
Speaker 1:Or if you do it to the government, you say, Hey, listen, I wanna, I wanna fund the local community college at my, in my area. So you give them the money, they give you interest for that. And then at the end of that term, whatever it was decided when you started, that would be given back to you and you get interest along the way. Okay. How much money do I actually need to start investing?
Speaker 1:Do I need thousands of dollars or can I start with $50? So I did kind of mention this earlier, but I would say like, just do something. Right? Do something in the beginning. Like, get that bar out, lift the bar.
Speaker 1:You don't put 400 pounds on the bar and just go crazy with it. Right? You just like, you gotta start somewhere. With that being said, you also have a timeline issue. So in other words, like if you're younger, you could put away less and get that compounding effect.
Speaker 1:But if you're older, like you're going to have to put away more money. I think a good rule of thumb for, people, and again, it's not perfect, but it's like without, you know, generalized advice. So generalized advice would say, if you're younger, you can get away with 10% of your gross income and kind of keep that as a rule. So in other words, like if you're only making $7,000 a year, $700. Right.
Speaker 1:But like once you transition out of college into like a job or a trade school or something like that, and you're not making like $50 a year or $40 a year, well, now it's 4,000. And so you should just get used to always putting 10% away. If you're starting in your mid to late thirties, that number needs to go to around 15%. And that's that's where it can get tough because by the time you're in your mid thirties, you know, taking 15% of your gross income, let's say you're making $50 now and you take 15% of gross income like now you're you're living on different money than you were used to living on. So that's I think that's the biggest caveat is that you have to put more money in the longer you go, the later you wait.
Speaker 1:Mean,
Speaker 2:you don't have to repeat the whole question.
Speaker 1:Okay.
Speaker 2:What is, what does diversification mean? And why does everyone act like it's the most important thing in the world?
Speaker 1:So diversification is a key component to investing. And so the simple way of calling diversification out is saying, don't put all your eggs in one basket. So with people when they're investing, you know, they need to have their eggs in different baskets. What I mean by that is just like, I I'm a I'm a big fan of, you know, certain stocks, you know, like a Tesla or Google or something like that. You know, it's like, but I'm not gonna put all my money in that.
Speaker 1:Right? I'm not gonna ride or die with Tesla or Apple or Amazon. I'm I'm not gonna do that, but I can believe in them. So you wanna have a little bit of money in different places, and that's the diversification part. When you get into a mutual fund or an ETF, that is where you kinda run into this, like, you know, it's a it's the best companies in the world or it's the best companies in The United States or it's the best companies in technology.
Speaker 1:It's those kinds of things as that's how you reach diversification easier than trying to buy, like, little tiny business shares of different stocks. That's tougher, way tougher. That's why mutual funds and ETFs were invented. Diversification is important in the fact that if you have like all of your money into one thing and that one thing passes away, like let's talk about Enron. Probably most people don't remember Enron, but Enron was a big company.
Speaker 1:They were making billions of dollars and they were like one of the favorites on the stock market. And then they found out one day that they'd been cooking the books and immediately that stock went to like zero. So like, if you had all your eggs in that basket, you would have no eggs. So that's, that's really the key to diversification. There's a thing that called modern portfolio theory, which is really extremely boring stuff.
Speaker 1:So if you, want to try to fall asleep and you can't, that's a good thing to start looking into. But with modern portfolio theory, they say that you need about 10 to 12 stocks to reach diversification. Most ETFs are mutual funds are like two to 300 stocks or bonds or whatever. So just using those can give you definitely more of a diversification without having so much effort involved.
Speaker 2:I have debt. Should I pay off? Should I pay that off first or start investing at the same time? Where is the line?
Speaker 1:That's so the question of debt versus investing is a tough one. You know, if you listen to like a Dave Ramsey, he's always going to tell you to like put away your debt first. I feel like it really kind of depends on like what your debt is, what it's doing for you and like what the interest rate is. So, so if you've got an interest rate on your home, that's like 3%, like why would you pay that off? Because you also get a tax deduction.
Speaker 1:If you're filing, if you're filing your taxes and you want to do an itemized deduction, can, you can itemize the interest on that loan. So if you do that, then you're only paying like, like 6% for the 24, 24% tax bracket is really like a 4% loan. But if you're in a three percent loan, you're like a two and a quarter after your tax benefit. So why would you pay that off when you could take that same money and put it into the market and get, you know, I mean, historically, the market's paid between 810%. Even conservatively, you know, in a diversified portfolio, people will say you're going to get between 68%.
Speaker 1:So why would you you know that interest rate is fixed on the loan of your of your home? You know, it's low like you would just in my opinion, you would keep it. But like, you know, if you have a car loan, right? And so like, let's say you have a car loan and you didn't have any credit when you got the car loan. So the car loan is 22% interest or the credit card is 22% interest or really credit cards now are like 32% interest, which is absolute usury.
Speaker 1:Anyway, if you have those kinds of bets, I would try to, like, kill those debts as fast as possible just because, like, your your investment in the market isn't gonna keep track typically speaking with a 22 to a 28, a 32% interest rate. So does that make sense? It kind of has to like balance out.
Speaker 2:Can I go off book and ask you a question?
Speaker 1:Yeah, of course.
Speaker 2:If you lost everything today and you had to make all your money back, what would you do? And then to second that, what are you doing now to make your next million?
Speaker 1:Those are two questions. So we're gonna have to separate those out. Just let's start with the first one first. Okay. So if I lost everything, what would I do?
Speaker 1:Now, are you talking about like, if I lost everything and I'm this old?
Speaker 2:You're right now. So all your money. So you have like your homes and stuff. You just need to remake all the money. What would you do to regenerate your income?
Speaker 1:Honest answer? Yeah. I moved to Costa Rica and I sell coconuts on the beach. But no. The real answer that that's probably the realest answer of all.
Speaker 1:But but no. If I lost everything and I had to start over, it would be I would do two effects. Right? So I'm I'm still making the same amount of money I'm making. The first thing I would do is start buying smaller houses.
Speaker 1:I would buy a small house to live in, and then I would stair step out of that every couple of years into another house and take that other small house that I was in and turn that into a rental. One of the things I have rentals now, but one of the things I would have done if I could do it all over again is I would have, I would have went from a rental to a rental to a rental every two years because you can buy a rental with less money down. If it's your house, it's it's not a rental, it's owner occupied. So you can buy with less money down. You get a better interest rate.
Speaker 1:And after two years, you can leave and go somewhere else. And the mortgage people don't, you know, they don't it's not it's not considered, you know, bad. It's it's actually fine with them. It's not like you're not pulling one over on them if you do that. So that would be number one is I would make sure that I have a plan to buy a small house, live in that small house, with the intention that's gonna become a rental, and I'm gonna move to another house.
Speaker 1:So again, like ten years later, I'll have, you know, five rent off for four rentals and a house I live in. So I'd be number one. Number two is that I would definitely aggressively put money into like a Roth IRA or try to find an option for a Roth. And then you just have to, like, in that case, if I've lost everything, the good thing is about losing everything is I also don't have any payments. Right?
Speaker 1:So if I have this income and I have no payments, then I can really force myself to put money into like a Roth four zero one ks and then really push the money in there, not just like, you know, kind of put a little bit in, but like put as much as I possibly can in. And again, like that would still, you would still, if you lost everything and you were like, I'm 54, it's still going to take you a while to get there. But I would say you could still probably retire at 70. You can invest more and you retire early. You could spend less and you can retire early.
Speaker 1:There's lot of caveats that go into that. But just knowing my lifestyle and where I want to be with things, I would say I probably would just keep working until I was roughly 70. And that that's kind of the plan already anyway. More if I can get there. Okay.
Speaker 1:Second question was what?
Speaker 2:What are you doing right now to make your next million?
Speaker 1:Hit this million. I think right now my focus is more on helping other people with their businesses and just knowing that that will like sort of not only just karmically, but also come back to me because like, in other words, like if I'm helping a small business right now, my focus right now is small business and tax savings. So if I'm helping a small business and I say, Hey, listen, we can make these three or four moves. And it's going to save you a $100,000 in tax. Right?
Speaker 1:Well, I want that a $100,000 that you've saved. I want that to go into some sort of retirement account to find contribution, to find benefit. That's a lot of jargon there, but just in general, like I want that to be invested. And then as an investment advisor, you know, that's how I grow my business. So that's, that's where my focus is on the business and saving them money.
Speaker 1:But I know that a side effect of that will ultimately be that I'll have more assets to manage and that'll grow my business as well.
Speaker 2:What's compound interest and why do people call it the eighth wonder of the world?
Speaker 1:That's good. So what's compound interests? Basically, would just say they asked Einstein and this may be like a, like a old wives' tale or something like that. But they asked Einstein what the most powerful force in the universe was. And his answer was compound interest because the younger you start, the more just piles and piles and piles on top of each other.
Speaker 1:So just in plain in numbers, if you had $10,000 and you got 6% interest, right? So at the end of that year, you would have $10,600 Well, so you get 6% interest the next year. You're not just getting a 6% interest on the 10,000. Now you're getting a 6% interest on the 10,600. And so you could see how, like, has like a multiplicative effect.
Speaker 1:It just continues to stack on top of each other. And so that's what compound interest is. You can have it working for you or against you. So I believe that if you have it working for you, you're you're investing. If you have it working against you, then you're looking definitely more like, you know, having a long term loans and stuff like that.
Speaker 1:That means the bank's making money off of compound interest and not you.
Speaker 2:The market crash and I'm freaking out. Should I pull out my money or just leave it alone?
Speaker 1:So I, I really liked the question about what happens when the market corrects or crashes. So, I have a completely different take on it than probably a lot of people. And I think that's one of the things that makes me a really good advisor. I love market corrections. I love market crashes, because I don't use those labels.
Speaker 1:So to me, a correction is a sale. So all the things that I already like are now cheaper than they used to be. Right. And when I hear crash, I think clearance, right? That's where you have to walk all the way to the back of the store and find that rack.
Speaker 1:Like everything you love is on clearance. So to me as an investor, I want to buy things as cheaply as I possibly can. So when I hear crash and correction, I'm like, let's go. Where's our money? Can we start eBaying things?
Speaker 1:Like, I sell the dog? Those are the kinds of things that I want to accomplish during a correction or a crash. In my practice, we always have a little bit of money set aside, what I call it, the war chest, but it's typically in like bonds or bond mutual funds. So when we do see a correction or a crash, I'm able to take money out of that war chest and put it into the market because not everybody has like $10,000 or a $100,000 sitting, you know, next to the door in a bag of money. So like you have to find places to get it.
Speaker 1:So that's why we always have a, in a diversified portfolio. We have a little bit of money as a war chest that we can stick into the market when the market's bad. The only time that you would really be like, okay, I I'm, this is a really bad deal for me, a correction or a crash is if you are literally like one year away from retirement or like one year into retirement. Right. And in that case, if you're one year away from retirement or you're one year into retirement and you're going to need that money to live on, then you need to become instantly more conservative.
Speaker 1:So you should take like so where, as I said, like if you're younger, maybe we have 20% of your portfolio in a bond market thing. So we're that's our war chest. But if we're retiring, like we wanna have like three years of expenses in that same war chest. And so that way we can ride out any really terrible market.
Speaker 2:What's the biggest mistake you see people make with their money that's completely avoidable?
Speaker 1:I think it all I'll end with the exact way I sort of started, which is that I think the biggest mistake is that they don't do anything. Right. That it's like paralysis by analysis. And they're just like, I don't know what to do. I don't know where to go.
Speaker 1:And I would just say like, just if you're younger, just start putting money in. And of course everybody in the world talks about broad based market index funds, which again, like great jargon. Thank you so much for that. What it means is the invest in the stock market, invest in the world's best companies, S and P 500, which is, there's a few tickers for it, but one of them is like SPY. And people will often recommend that you hear Warren Buffett recommended your Susie Orman recommended Dave Ramsey recommends it, but they're all older people.
Speaker 1:Right? So, so that's a very like conservative, good and diversification of your investments. If you're younger, you should be looking at things that are still like growing more. I look at a lot. I tell people a lot of times, take a look at a QQQ.
Speaker 1:A QQQ is the top 100 stocks in the NASDAQ. So a lot of things that you already know are in there and it's a really great fund. If you put $10,000 into the S and P five hundred thirty years ago, you'd have right now, you'd have probably about $550,000 So pretty great return. If you had $10,000 in QQQ thirty years ago, you'd have 5 and a half million dollars. So it's quite significantly more of a return now.
Speaker 1:Is it riskier? Yes. I mean, but define risk. Right? So we've already defined that the market lowering is not really risky.
Speaker 1:It's an opportunity for buying. Right. So, but it let's, let's give real numbers in 2008 when the market crashed, right. It went down about 49% in one single year. The QQQ went down like 93% in that same year.
Speaker 1:But with that being said, you know, the market recovered, QQQ recovered, S and P five hundred recovered, and you still ended up with five and a half million dollars. And what I would say is when that happens, if that happens, that's a great opportunity for you to put more money into it. Like and I've never really done the numbers on it, but if in 2008, when the market was down 93 when that QQQ was down 93%, if you put another $10,000 in it, I mean, the numbers on that would be bananas. So that's what I would say is, is do something. Right?
Speaker 1:And if you're looking for like a, like kind of a catchall, if you're a little bit older, like forties and above, maybe S and P 500 ETF. If you're a little bit younger, you could queue. That's what I would say. Thank you so much for listening today. I really appreciate it.
Speaker 1:If you guys have any questions at all that I didn't answer today, please put them in the comments, and I'll try to answer them in the next episode. I really want this to be interactive. I really want you guys to let me know what you're looking for, What questions do you have? How can I better serve you? I do also want to make sure that I'm reiterating this, taxes are huge.
Speaker 1:And so I am looking right now specifically at trying to save individuals and small businesses as much taxes as possible. As you know, our government's not super efficient at using our tax money. So although I think we should pay taxes and then we should give them a portion of what we make so that we could have roads and fire and police, I will pay the bill. I will not give a tip. I'm definitely not given a bonus.
Speaker 1:So if that's you and you're a small business owner and you make over $500,000 a year and you're paying half of that to the government, you guys know how to get ahold of me. I'm happy to help. Alright. Thanks for listening to the show today, guys. I appreciate it.
Speaker 1:I had a good time answering these questions. These are questions I get all the time, but there's many, many more out there. If you have a question specifically that you wanna have answered, throw it in the comments, and I'll try to answer it at the next time we do this. Also, if you are interested in tax strategies, that is something I'm very much focusing on these days is to help people with our tax strategies to help them pay less to the government. As you guys know, the government's not super efficient with our money.
Speaker 1:And, I do believe that we should, you know, have fire and police and good roads and things like that. So I'm gonna pay the tax bill, but I'm not gonna give them a bonus and I'm definitely not giving them a tip. So if that sounds like you and you will have more interest in that, like, hit the like button, hit the share button, make a comment, and let's get this thing going until the algorithm sees what we're doing. I appreciate you guys so much and hope you're having a great day.