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Episode 229 - Unlocking the Basics of Investing

Investing can often appear as a complex labyrinth, especially for those who have triumphed over the mountain of debt and are looking to take the next step towards securing financial freedom. The latest episode of the Debt Free Dad Podcast delves deep into the essentials of investing, offering a comprehensive guide for beginners and seasoned investors alike. Hosted by Brad Nelson, alongside special guests Greg and Colin from the Free Lunch Podcast, this episode dispels common myths, explains the basics of investing, and underscores the psychological aspects that often steer our financial decisions. 

 

Breaking Down the Basics 

Investing is not just reserved for the wealthy or those with a vast understanding of the financial markets. As Greg and Colin emphasize, the journey begins with recognizing the amount of excess cash you can allocate towards investments. The crucial first step is to establish how much you're willing to invest, debunking the myth that there’s a 'right time' to start. Essentially, any time is the right time as long as you have the financial capacity to do so. 

Demystifying Investing Misconceptions  

Many hold back from dipping their toes in the investment pool due to misconceptions fueled by fear, lack of knowledge, or the belief that investing is akin to gambling. Contrary to this belief, investing in stock markets or mutual funds isn’t about taking wild chances but making informed decisions based on data and factual information. 

The Power of Compound Interest 

One of the most enlightening moments in the episode is the discussion on compound interest – a concept foreign to those accustomed to paying interest rather than earning it. Through compelling examples, Greg illustrates the remarkable growth potential of regular and disciplined investments over time. Compound interest not only amplifies your savings but serves as a critical instrument in wealth accumulation. 

Avoiding the Noise: Staying on Course Amid Market Volatility 

Navigating through economic unpredictability's and market swings can induce anxiety among investors. It is important to maintain a steadfast approach, focusing on long-term goals rather than getting swayed by temporary fluctuations or sensational news headlines. An essential piece of advice offered is to ignore the market's noise and stay disciplined in your investment strategy. 

Choosing the Right Path: Self-Investing vs. Hiring an Advisor 

For those embarking on the investment journey, deciding whether to go solo or seek professional advice can be daunting. Greg and Colin present a spectrum of options, from robo-advisors for those who prefer a hands-on approach, to financial planners or investment advisors for personalized guidance. The underlying message is clear - assess your comfort level, conduct thorough research, and choose the pathway that aligns with your financial aspirations and risk tolerance.   

With the right mindset, adequate knowledge, and disciplined approach, anyone can navigate the investment landscape successfully. Whether you're a beginner or an experienced investor, the insights shared by Brad, Greg, and Colin offer invaluable guidance in our pursuit of financial independence and security. 

For those seeking to delve deeper into the intricacies of investing, tune into the CM Group Free Lunch Podcast. 

Resources Mentioned

Get better results with your finances in 30-60 days - GUARANTEED. Watch this video to learn how! - https://www.debtfreedad.com/payoff-debt-in-60-to-90-days 

Free Tools and Downloads at www.debtfreedad.com

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Episode Transcript: 

Brad:  

Hey, today we are taking a deep dive into the fundamental principles of investing. Now here on the Debt-Free Dad podcast, as you guys know, our mission is all about empowering you to break free from the shackles of debt, paving the way for a life with less financial stress and more of what truly brings you happiness. But hey, once you've conquered that debt mountain, it's time to set your sights on the big picture, which is investing in your future. Now I'm absolutely thrilled to have Greg and Colin from the Free Lunch Podcast joining us here today, and they're here to guide us through the investing basics, shedding some light on some common misconceptions along the way. So sit tight and get ready to level up your financial know-how.

Speaker 2:  

Stay tuned. You're listening to the Debt-Free Dad Podcast with Brad Nelson. Brad and his co-hosts experienced the anxiety of living paycheck to paycheck before learning the fundamentals of financial success. They are now on a mission to empower regular people to pay off their debt for good and enjoy happier, less stressful lives.

Brad:  

Keep listening for inspirational interviews, tips, tricks and practical advice to gain financial freedom. I have helped thousands of other people save and pay off tens of millions of dollars with the work that we've done here over the years at Debt Free Dad. Now, after listening to this episode, if you are ready to take this a step further and you'd like to get better results with your finances in as little as just 30 to 60 days, we're going to be sharing some details about how you can get started in that a little later on in the show. So, as I mentioned, guys, I'm really excited to welcome Colin and Greg to the show today to talk about the basics of investing. I know many of our listeners have reached out over the years saying, hey, when are you guys going to talk about investing? Well, today is that day. We're going to start getting into some of that. So first I'm going to introduce Colin.

Brad:  

Colin Andrews is a portfolio manager and operates as the business leader for the CM Group. He is a dedicated believer in the long-term approach to building and protecting wealth, offering high net worth individuals and their families investment advice since 1999. When he's not in the office, Colin enjoys spending time with his wife and his children, spending time as a family, getting out to the mountains in the summer and being at that cold hockey rink or basketball court in the winter. Greg Kaminsky is a portfolio manager for the CM Group and has been working with individual and corporate clients to create a positive investment experience since 1996. Now Greg's background in science has led him to an evidence-based approach to the wealth management process, which drives planning and investing decisions based on data and factual information rather than emotions and speculation. Outside of the office, Greg spends his time with his wife and children, not to mention a menagerie of his furry friends. Greg and Colin, welcome to the show. So glad that you guys are joining us here today.

Colin:  

Yeah, thanks for having us. Great to be here.

Brad:  

Yeah, absolutely so. Greg and Colin were kind enough to have me on their podcast, the Free Lunch Podcast, so if after listening to this, obviously they'll probably point you in that direction too. But they talk all about investing in there. So if you're looking to learn more, it's a great podcast to start listening to, because they cover a lot of those topics on that show. Something I want everyone to know is, I'm going to pretend to be somebody who doesn't really know anything about investing and I don't claim to be an investment expert. In fact, I am not. Anyone asked me about investment advice. It's like I'm the wrong person to talk to. I can help you get out of debt. You need to talk to some other professionals about when it comes to investing. But if I was a newbie when it comes to investing, guys, what are the things that I should be thinking about or considering first, Like, how do I open this door to this investment world if I know nothing about it?

Colin:  

I think the first thing for me is figuring out just how much excess cash you have to invest would be a good place to start, because a question we often get from new investors and people that have been with us a long time is when's a good time to start investing? And the answer is it's a good time to start investing when you have cash. It kind of doesn't matter when during a cycle is just figuring out how much do you have to invest first. I think that would be the place to start. Greg, what do you think?

Greg:  

Absolutely. I mean you know, and, Brad, your listeners. I mean they've been working to get out of debt, and usually that means being careful with budgets and using excess cash each month to pay down debt. Now, a lot of these people have been doing that. They've been setting aside an amount of cash to pay down their existing debt. Now that they're out of debt, they are in a habit of setting aside those amounts of money, and if you then use those amounts of money to actually invest as opposed to paying down debt, then you're setting yourself up for the long-term future by having, ideally, the discipline to set aside savings for the long-term.

Brad:  

So once I have kind of an established amount, though, how do I overcome this feeling of feeling dumb or stupid about this topic? You know, inadequate, maybe I've never been really taught how to do this and some people probably stay away. In fact, I've talked to several people over the years that stay away from the market and they don't invest because they just don't know anything about it.

Colin:  

Yeah, I like to start the conversation with, first of all you've established how much you can afford to invest. But I start the conversation with. Investing is complex. It is not simple Like what people talk about the stock market or the bond market. They talk about it very flippantly, but the reality is most people don't really have a good understanding of what a stock market even is, and so then they get sort of overwhelmed with okay, well, I don't really understand what the stock market is. What stock would I even buy? Where would I put my money? And so Greg and I spent a lot of time with clients and family members of clients just going through some of the basics you know, like what is a stock, what is a bond, how do they work? You know how, if you put all of your eggs in one basket, so to speak, and one type of security, you're probably taking on a lot more risk than you know.

Greg:  

A lot of this stems from, as you say, Brad, people are unsure about how to approach the stock market, and I think you don't have to be an expert, you don't have to understand all the inner workings of stocks and bonds, but you need to do some amount of self-education or having somebody help you with it, to really understand how they work.

Greg:  

Because one of the myths of investing is that, well, it's like gambling, it's taking a big risk, and I can't afford to do that after I've spent so much time paying down debt and actually having money to invest.

Greg:  

And, as Colin mentioned, investing in the stock market it's really not like gambling. I mean, owning stocks means owning shares of businesses that drive the economy and produce the goods and services that we all use our phones, our technology, et cetera and so separating the perceived risk of investing from the reality, I think, is step one, and that does require some amount of education. And, of course, there's lots of places to learn that are different websites and things. They're dedicated to just giving people an understanding of how these things work. And, as Colin mentions, the approach has to be more than just what stock do I buy? Because, of course, we recommend, in fact, that there's no need for people to buy individual stocks at all, and so, looking at ways to get into the markets whether it's stock markets or bond markets it does require a little bit of searching and searching for advice, which is relatively plentiful.

Colin:  

The problem I see is that we're surrounded by these headlines that tell us that we should be doing something, and we just don't know what to do. And so you fall prey to the headlines. You know, if a market is down, somebody might say, well, why would I risk any of my money right now? You know, if a market's up, there might be this fear of missing out. Like, oh, geez, I missed out. How do I get in? And then it's well, as Greg said, what do I actually buy?

Colin:  

Because I can tell you, the first day I was licensed to actually work in this role, it was one of the scariest days of my life, because I was newly minted a newly minted stock broker, as we were called back then and I had no idea what stock I would even recommend. So how would anybody that's coming to me at that time for advice have any confidence in what to do? Right, right? So it's a very complex arena and, as Greg mentioned, there's so many places where you can get the fundamentals first, like what is the stock market? What is the bond market. How do they work together? In regards to risk, how do you diversify that risk? I mean, I think that's step one.

Greg:  

So, when it comes to a typical portfolio, when you guys work with individuals, I know everyone's situation is probably different. One of the things people might think is well, I don't have enough money to get into the stock market. Don't you have to have $50,000, $100,000 to get in? And that's just not true. You can get in with very small initial purchases. Structures or things that you can invest in would be mutual funds or exchange traded funds, and all these funds are baskets of securities. So rather than having to go out if you want to invest in the stock market, rather than going out and having to pick 50 or 100 stocks, you can just buy an exchange traded fund or a mutual fund that holds all of those stocks, all of the stocks in the index, for example, the S&P 500 index. You can buy that at a very low cost and you get instant diversification. Your portfolio will perform as well as the stock markets with $100 initial investment, for example. So looking for those inexpensive, diversified products that give you the exposure you need is the simplest way to approach it.

Brad:  

So for newer investors that you see coming in. What are some of the misconceptions? I know you mentioned, Colin like headlines. What are some myths or some, I guess, maybe truthiness statements that people believe that just aren't really all that true when it comes to investing? And they have these ideas because of you know, social media and the news and what their friends and family are doing. Or there might be this one person who's doing you know individual stocks and you know he's making it rich. Like, do they do? People have a lot of these misconceptions coming in?

Colin:  

Oh, so many, so many. Have you ever been around a gambler? Sure for sure, okay. And does a gambler ever tell you about their losses, or do they tell you about their wins? Only the wins, only the wins.

Colin:  

That's the same with if you're around the water cooler in the office or talking to friends and family at gatherings people typically only talk about things that maybe they bought, that went up, but they don't talk about all the things that they did that didn't work out Right, and so it leaves the person in that situation feeling like, wow, that person really knows what they're doing. Like I want to be like them, but the person that's relaying that information probably didn't really know what they were doing to begin with. You know so. So that's a big misconception that I run into all the time, especially with younger people or people that are just starting out is they feel like they're. They feel like people like us are gatekeepers of information.

Colin:  

Like like Greg and I have some secret information that is only accessible to the ultra wealthy, you know, and we only give it to people that we work with. It's just not true, you know. I mean, let's just say it this way, and I'm rambling on Investments are priced based off of all of the information that's available today. Just assume that there's no inside track, that you know, if you're buying a mutual fund or stock or a bond or whatever, that the price today is because of what's known about it today and nobody knows what the news will be tomorrow. So that's sort of number one, I'd say, Greg.

Greg:  

Yeah, and I think well, I mentioned another myth, just that, as Colin mentioned, that investing is like gambling. It really isn't. You know gambling. If you're gambling in Las Vegas, for example, they say the house always wins and it does on average, you know the odds of winning at any of the games in Las Vegas is below 50%, and so it's not a good bet, whereas investing is not like gambling. Investing, as I mentioned, you're buying shares of businesses that grow over time, and just to own the stock market index which we talked about, the S&P 500 index, which is the 500 largest stocks that trade in the United States, just by owning that index, you'd have exposure to Apple, nvidia, tesla, all of the names that you're hearing, plus hundreds of other names that you don't hear about but are great businesses.

Greg:  

And I think one of the other myths that can be devastating for people wanting to get in and is just that whole thought that I can wait for the best time to get into the market, like today, the markets are too high and it's too late, I've missed it. Or the markets are too low and they're dropping, and why would I put money into something that's going down every day? And so this concept of being able to time the best time to get into the market is really a bit of a fallacy, because it's pretty much impossible. And so what happens is, if you're a new investor, one of the best ways you can invest is through something we call dollar cost averaging, and all that means is buying a fixed amount of investments call it stocks for now through a low cost fund and just putting that money in every month. If it's $100 a month you can afford, then put in $100 a month into the investments and just buy it every month.

Greg:  

Because the thing that most people don't understand is that when you're a buyer of stocks, you actually hope that the stock market goes down, whereas when most people wring their hands about, oh, the stock market is down 20% or 30%, as it was during the COVID pandemic, for example. Yeah, it's painful for people that are already holding lots of stocks, but for people that are already holding lots of stocks, but for people that are buying stocks, you're buying on sale, and the only time you really hope that the market goes up is when you're nearing the end of your saving period and you want to start using your money, and that's when you hope the markets are nice and high. So if you have a long time horizon and the ability to just contribute regularly $100 a month it can really benefit you, and I actually have some mathematical examples that I can share with you if you're interested. Yeah, absolutely.

Greg:  

Well let's take, you know, the first 10 years of the millennium, say from 2000 to 2009,. That was a very bad time for the US stock market. So during that time period, U. S. stocks actually went down about a percent a year over a period of 10 years. So that would not be the best time, you would think, to be invested in the stock market. However, if you using my example of just putting in $100 a month beginning in January of 1999, and you just did that for 25 years $100 a month for 25 years, so January 99 to the end of December of 2023, the total value of your portfolio would be $120,239. And that's with a total amount invested of $30,000. So your $30,000 became $120,000, which is an internal rate of return of about 9.8%.

Greg:  

Now we know that the US stock market did not do 9.8% in the first 10 years of the millennium. They did negative 1% a year. But by buying stocks during that time and the subsequent bear markets everyone remembers the global financial crisis in 2008. By buying stocks all the way through that period as well, you did extremely well and it didn't take a lot of. All it took was the discipline to put $100 a month away every month. So it's pretty simple.

Brad:  

Yeah, it's incredible. I love messing around with the calculators and looking at things and talking about things like compound interest, Because talk a little bit about that, Because most people who are in debt live in paycheck to paycheck. Interest to them is like I'm paying it Credit cards, car payments, student loans, whatever it might be. Not many people are actually earning interest. But can you talk briefly about what the magic is behind compound interest? And you mentioned time. You mentioned this example. You have 25 years. How does time and compound interest work together?

Greg:  

Yeah, Well, listen, let me just first of all talk about compound interest versus simple interest. So simple interest is kind of like if you're paying off a loan and the interest that you accrue meaning you owe it you have to pay your lender. As long as you pay off the amount of interest each month, then that's what's called simple interest. So, for example, now you're not paying interest anymore, as you say, which is a penalty. You're earning interest, which is a benefit. Simple interest as an example if the interest rate is 5%, if you invest $10,000, you earn 5% per year. So you're in $500 per year and after 10 years you would have $5,000. So 500 per year times 10 years. Okay, so that's simple interest.

Colin:  

Sorry, Greg, the total would be 15. Oh sorry, 15,000 for your total value. You didn't lose 5,000. Yeah, you gained 5,000.

Greg:  

Yeah, 10,000 of your own money and $5,000 of interest. So your value is $15,000 at the end of that 10-year period. Compound interest just means essentially that every year you earn interest on your principal amount that you invested plus the interest that you earned the previous year. So if you earn $500 one year, then the next year you earn 5% on your original $10,000 plus the $500 of interest that you earned. So after 10 years, instead of $15,000, you end up with $16,288. And so you've got now $10,000 of your original investment plus $6,288 of interest instead of $5,000. So that's basically 25% more interest just by virtue of having compounding working for you.

Greg:  

And one last example to try to tie together the power of compound interest really grows and multiplies over time. So the more time you have for interest to compound, the better off you are. And so I'm going to run some numbers. And it's a little bit hard when you can't sit down and look at the numbers. Hearing them described can be a little challenging. So I'll do my best and reiterate the numbers. But let's say you've got two scenarios. Consider them twins. One twin begins saving $100 a month at age 25 and saves for 15 years. So for 15 years. So from age 25 to age 40, they save $100 a month and earn 5% a year. After that 15 years of saving, they don't invest any further money. So from age 40 to age 65, they don't invest anymore. They've just got the money they've invested originally. You want to know why they don't invest?

Colin:  

anymore, Greg. Why? Because now they're paying for their kids, exactly. They got to pay for birthdays and activities, that's right, they don't have that a hundred bucks a month anymore.

Greg:  

That's a tough age. So anyway, at age 65, they would have $90,889, based on an initial investment of $18,000, $100 a month over 15 years. Their twin decides to wait for 10 years. Perhaps they have children earlier. At any case, they begin saving at age 35 and save for 30 years. So, starting at age 35, they save $100 a month right up until age 65. At the same 5% compounded At age 65, they'll have $83,500. So the first twin, saved for 15 years, invested only $18,000 and has over $90,000. Whereas by starting 10 years later, you have to invest twice as much and instead of 90,000, you have 83,000. So it just goes to show that the power of compounding is really magnified the earlier you can begin, and it's never too late, by the way. So in this particular example, it's great that somebody started at age 25. But if you're starting at age 35, that's okay, but maybe you need to contribute $150 a month instead of a hundred.

Brad:  

Yeah, I, I. I took this example, I learned this and for both of my kids I put in just $75 a month, and I've been doing that since they were born. It's $75 a month. I invest it every single month and, uh, the amazingness that that will turn out to be one day for them and helping them.

Brad:  

It's, it's and it's just a little amount we think about. You know. You know you had brought up. You know, Colin, that it's kids. Well, we talked about kids are expensive. Right they have all these costs and stuff. But think about how much junk we buy our kids that they don't even use anymore. You think about $75 and that's the average phone plan nowdays. Even if you did $25, just just how that'll grow over time and then teaching your kids to continue doing it, you know, and just to keep going. Um man, it could just do wonders for you know, from generational wealth standpoint, changing your family tree and saving and all that stuff. It's so cool. I love compound interest. It's always a fun topic.

Colin:  

I think the add on to that is, as Greg was saying, just put in what you can and make it a regular habit. So, whether it's 25, 50, 100 or 500, whatever your cash flow situation is, you're going to be further ahead. Like there's nobody that starts a savings plan that 20 years later looks back and says, oh, I wish I wouldn't have done that. But there's lots of people that are close to 65, 70 years old that look back and go man, I wish I would have saved earlier, right.

Brad:  

Yeah, yeah, absolutely. I hear people that we help that are in their 50s, 60s and 70s and they're saying the same thing. I wish I would have started when I was 18, 19, 20 years old, knowing what I do today, so right on.

Brad:  

So, guys, how do you combat all of the information that's going on out there, you know, with with your clients, you know I mean social media and the news, and just the uncertainties that are happening in the world at all times. And now we've got our money in the market and fear strikes that we're going to lose it all. And how do you work with people through those emotions? Because you know consistency and discipline, obviously, continuing to do it month after month, year after year, is how you grow wealth over time. But how do you navigate some of these? Really, you know these areas that we go through in life that are more of turmoil, and you know the economy's up, the economy's down, there's war, there's inflation, there's all these things going on. How do we work through that?

Colin:  

I think the easiest way of dealing with that is just to point out how everything is cyclical, that the headlines today are no different than the headlines from 10 years ago, 20 years ago, 30 years ago. There's always a reason to not invest. There's always something going on in the world. Today it's Israel and Gaza and Ukraine, and maybe an upcoming US election, inflation, interest rates. Those are the headlines, right? What we do advise people to do is to ignore the headlines. So, if you've established that regular saving plan, just accept that there are headlines that are going to try to take you off the rails and you just have to ignore them and that's step one. I'm making it sound easy and it's probably the hardest thing people have to deal with because we call them squirrel moments. Do you remember the movie? Was it Up? I think it was called Up a kid's movie.

Brad:  

With the balloons and the house?

Colin:  

Yeah, yeah, the guy's going through something and there's a squirrel moment where he gets off track just for a second. I mean, that's kind of what headlines do to you. I mean, the fact is, every day that the market has a negative day, you're going to see a big headline about how the Dow dropped this, the S&P 500 dropped that. Every day that the market goes up by the same amount, you're not going to see that headline that things are pretty good right now. It's never printed. So the first thing you got to do is just ignore it, just continue to keep saving, uh, with your strategy, and just accept that there are things that are going to try to take you off the track.

Brad:  

Yeah, 9-11 comes to mind. When you brought that up, I remember you know they. They constantly talked about how the market went down after 9-11, but then when it rebounded, I think it was a month and a half later. There's no real mention of it.

Greg:  

I mean you really have to trust the markets in a way.

Greg:  

You know, the markets have been going up steadily since they were formed, since 1926, there's been the Great Depression, there's been a world war, t9/11 been , as you mentioned, there's been all sorts of global and geopolitical and uh issues and, once in a lifetime, things like pandemics, and yet the markets continue to go up over time.

Greg:  

And it's to be expected because, uh, because the economies grow, you know, and and businesses grow and so so I think a part of it is really believing you know, and it's because you're fighting emotions, and so it's a very difficult thing, but the best way to fight emotions is with facts and discipline and say you know what. This has happened before, the markets have never gone to zero and there's no reason why they would go to zero. And, by the way, as I mentioned earlier, thank goodness I'm buying stocks every month because they're on sale right now and I'm going to be really happy about that in the future sometime. So you really have to visualize the future with the belief that things will be better at some point in the future.

Colin:  

You know, that actually reminds me of a question we've been getting a lot these days. We're in Canada, but of course, our market is influenced by the US market greatly, and a question we get a lot is with this upcoming US election. I'm not going to turn this into a political discussion by any means, but you know, should I be worried about the markets and putting money in Some of the work Greg and I have done? We've looked back at all kinds of previous presidential cycles and the reality is the market doesn't really care if the person's wearing a blue hat or a red hat that's sitting in the White House. It is agnostic. So what the market does care about are there are global macro events that will impact it in the short term, but it doesn't matter who the president is, and I'm sure there are people listening here that might take offense to that or maybe won't agree with that statement but if you just look back, one of the worst performing presidential cycles was George W Bush.

Colin:  

Now you'd say, well, why was that? Was it because of the leader? No, it was because when he was president, you had 9/11, a global tech wreck, global financial crisis, and then he was out of the White House, and then you had Obama come in and we had the longest bull market in US stock market history, which had nothing to do with Obama. It's just that's the way the cycle went, and so our advice to people when they ask that question is it just doesn't matter. The market might react very quickly, very short, in a very short period of time, but you're not invested for a day, a week or a month. You're invested for, you know, years and decades.

Brad:  

So is there a way to um, to stay informed in a healthy way that doesn't cause a lot of this fear, cause, obviously, you know, news is just the easiest place to go, social media is the easiest place to go, cause it's right there, you're always there. I mean, what do you guys recommend to your clients to stay informed, like, or or do you suggest, you know, just set it and try to forget it, just leave it alone, you know, check it every once in a while, or or? What do you guys recommend in that situation?

Greg:  

Yeah, I think I wouldn't say check it and forget it, but certainly to not focus on the short term, because there's a lot of what we call noise in the markets. Markets can fluctuate quite a bit from day to day without being meaningful. You know it's just noise. I equate it to myself who I've been on a, you know, a perpetual weight loss plan and uh, and you know when you're uh, when you're watching your weight every day, you can go up by half a pound or down by half a pound, and it's really not, it's really not important.

Greg:  

It's a longer term trend, and so what we recommend is that people take time to establish the right investment strategy, ideally consistent with some long-term plan or goal that's been established at the beginning of their investing journey, and then check in regularly to say are we on track? And if we're not on track, why are we not on track? And maybe it's been a bad cycle in the market, Maybe it's been spending plans that don't line up with income, and so it does tie closely to what we hope that people will do, and that is, find an advisor or find a way to establish some plans and some goals upfront and then just measure your progress against those goals, Because a lot of times, if you're working towards a goal, even if the market didn't behave the way you would have liked in the last three or six months, you might still well be on track to achieve your goals and therefore it's not that it's not important, but you can look beyond it and say, okay, this will improve over time.

Brad:  

Yeah, Now, Greg, you mentioned advisor. So hiring an advisor, looking for an advisor or considering doing it on my own, like w hat are the options for people to start looking at investing, and what do you guys recommend?

Greg:  

Well, there's various.

Greg:  

There are various ways to invest, you know, and so, from the, from the very simplest online robo advisor kind of you know kind of scenario where, using an online platform, you can get access to some introductory investment advice.

Greg:  

In many cases it will be very appropriate advice because many of the platforms recommend, you know, broadly diversified portfolios using exchange traded funds or some low cost investment like that.

Greg:  

But it does take the kind of person that would use a robo-advisor would be one who's confident in themselves, you know, to be able to work their way through, understand what's being presented to them.

Greg:  

So that's the sort of self-help route, all the way to looking at an advisor at an investment firm like I registered an RIA in the US, registered investment advisors, or through one of the large broker-dealer type of firms, but looking for some advice and those people might, you know, or certainly you want somebody that has the credentials and the experience to be able to advise you and is willing to work with you, depending on your investments, you know, investment portfolio or how much cash you have to invest, and there are also financial planners that may help. And unfortunately there is no right answer for everybody because there are a number of different routes, but I think you have to consider your own strengths and weaknesses in terms of being able to do your own research from the standpoint of how to get started, and certainly use an advisor wherever possible, assuming a reasonable cost to do so and to get some professional advice.

Colin:  

You know, Brad, I want to add to that. I think it's kind of like medical advice. You know, I might have some issue with I don't know. My knee is sore and I'm going to go to Google and say my knee is sore and it's going to give me all kinds of different things to look at and it usually comes down to I'm having a heart attack or I have cancer.

Colin:  

It's typically the direction, but I mean, I probably am not having a heart attack, maybe I just sprained my knee. You know, when we work with people, and whether they're coming from a bank or they're coming from another advisor or they just have been doing it on their own, the first thing we ask them is do you have a financial plan? You know where you've established those goals, those buckets that you want to accomplish. The second thing that comes out of that is how much risk is appropriate for you. You know, and there's all kinds of online tools that will tell you, it will direct you to what your proper what's called asset allocation should be, so just how much should be in things that have low risk and how much should be in things that have more, like stock market risk. The third thing is we say is just make sure you're really diversified so you don't own one thing. You own hundreds of things, and that, as Greg said, could be done through a mutual fund or exchange traded fund, and none of that requires working with an advisor. You could do all that work by yourself, but if you have somebody that you found that you trust, they might be able to help you a little bit more.

Colin:  

The last two things are. Number four is what are your fees and expenses? Like, how much are you paying for that advice? You know, because that's really important, like it's what they call the silent killers. You know, how much tax am I paying because of that advice? What are my investment advisory fees? And then the last one, which is actually the most important one, is managing your emotion, and that is avoiding the headlines and all that stuff, just staying invested. So that's kind of the five-step breakdown that we use with everybody, whether they're new to investing or they're somebody that we've been working with a long time.

Brad:  

Yeah, that's great. So, when it comes to hiring an investor, though, are there any warning signs of stay away from like an investment advisor? Stay away from that.

Colin:  

Yeah, I got one for sure. Like anybody that starts the conversation with product, just walk away. You know there's gotta be like. You can't put the cart before the horse. You got to come up with the plan, not the end product. Greg, you got any others?

Greg:  

Well, and for me, and because advisors can work in a variety of different ways and they get paid in a variety of different ways. But we generally would say, you know, getting charged commissions for transactions can set up a very, you know, risky scenario in terms of possible conflicts of interest and things like that. Why is somebody recommending a trade which will generate a commission? Is that really in my best interest? And so we believe that other ways of paying for advice if you have to pay for advice, like if you're using an advisor, that maybe would be more related to fees for the assets that they're managing or something like that. So, yeah, absolutely. But, as Colin says, the most important thing is how can somebody make a recommendation for me when they don't, when they don't know me? And the way to get to know an investor is by digging into their situation and developing a financial plan for them.

Brad:  

So you mentioned fees like what. What does it cost me? Because obviously it costs money to invest. Where are those costs located for people so they can get an idea of what they're going to pay for things like these?

Colin:  

I think a big misconception is that when they, let's say, somebody goes to their local bank and they buy a term deposit or they buy a bank-sponsored mutual fund, the person might feel like they're not paying any fees. And this just isn't true. I mean, the bank is not a charity right. It has walls, it has an HVAC system, it has employees to pay. So if you buy a term deposit, you might not see the fee being charged. But instead of saying that term deposit paying you 5%, it's paying you 4.75% and the bank is keeping that 0.25. That's the fee, right. And the same thing happens in mutual funds. So if you buy a bank-owned mutual fund, there's something called a managed expense ratio, which is the cost of the fund. It's the cost for the provider to manage that investment solution. It's typically buried, you know, it's not always upfront, you know, and so you won't see that it's maybe costing you 2% per year to have that fund managed, you know. So, in other words, if that investment makes 8% a year but it's got a 2% management fee, well, the net to you is 6%, right? So those are sort of typical ones.

Colin:  

And then, as Greg mentioned, another issue is that it's not so relevant in the States. I think, Greg, it's more in Canada right now Because in the States you can do sort of commission-free trading platforms. We don't have that here. But even the commission-free trading platforms, there are still fees being collected behind the scenes. Those platforms don't exist again because they're charities. They're not run by the Red Cross, they're run by people that have a vested interest in having them attract more dollars. So there's fees and commissions being paid behind the scenes that people just might not be aware of.

Greg:  

I think, if you're looking for a number to put in your listeners' minds, Brad, if you think of something in the 1% range, that would be a very typical fee or cost for managing a portfolio, regardless of whether you know whether you're buying mutual funds or buying exchange traded funds or with with the, with advice, you know, I think. I think 1% is a is a number. It might some, some firms might charge a little more, maybe some charge a little less, but that would be a nu number that people could keep in their

Brad:  

Well, guys, this has been absolutely fantastic, especially just, you know, as an introduction to some of these topics. When it comes to investing, if people want to listen to more of what you guys have to offer, uh, where can they find more information from you guys?

Colin:  

Sure, our podcast is called CM, as in Charlie mother. Our podcast is called CM, as in Charlie Mother, cm Group Free Lunch. It's available on every one of the places you would find your podcast, or you can check us out at www. markets-work. com.

Brad:  

Awesome guys, thank you so much for being here today and dropping some wisdom on all of us. I appreciate you guys. So, hey, if you want to pay off debt, save more money and take control of your finances and start seeing some amazing results here in just the next 30 to 60 days, all you have to do is head over to debtfreedad. com, click on the green button at the top of the page and we're going to show you how you can get started on your own financial journey. So the totally awesome Debt Freedom Planner is helping so many people make consistent progress with their finances, whether that be building emergency funds, paying down bills, budgeting, tracking paydays, saving up for larger purchases, goal planning and planning for those irregular yearly expenses that always seem to catch you by surprise. Now the Debt Freedom Planner will help you take the stress out of managing your money. Now, the Debt Freedom Planner will help you take the stress out of managing your money. And if the thought is running through your mind, hey, I just need to have a simple tool to get my finances together. This planner is perfect for you. Head over to therealdebtfreedad. com. Click on the Debt Freedom Planner in the menu at the top of the page and order your Debt Freedom Planner today.

Brad:  

All right, as you guys know, that sound means it's time for the celebrations of the show, and today we are celebrating debt payoff wins, using the debt freedom success path that we share inside Roots of Personal Finance, our membership and a lot of things that we talk about on this podcast, and today we're kicking it off with Kati, our very own Kati Hatfield, who's on our podcast as a co-host here of our group discussions. She is celebrating, since July of 2018 on a single income, mind you, you guys $157,371 she has paid off and, by the way, when she started her journey five years ago, she was making $13 an hour. It's incredible, Kati, congratulations to you. Hope, she has paid off $1,206.20 of credit card debt, and she's also paid $7,409.72 in on-time payments, along with building her very first $1,000 emergency fund. She just got started back here about five or six months ago, Hope, congratulations to you.

Brad:  

Vida. Since January so at the time of this recording, we're about three months since January, so about three months time span she's paid off over $10,000, $10,186,. Vida, congratulations to you. And, last but not least, Hillary. Since June so we're talking probably about nine months or so $18,988 of debt paid off in nine months. Hillary, congratulations to you. You guys are absolutely killing it. And, as always, congratulations to all of you, our listeners, who are taking a stand for your financial life and are wanting better. Hey, we get that getting out of debt isn't easy, but with our help and your consistency and discipline, we promise you guys this is gonna be some of the best work that you guys do in your entire life. Thanks for being with us on today's show and we will see you on next week's episode.

 

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