WEBVTT - Saving vs Investing #163 0:00:00.160 --> 0:00:02.920 Welcome to How the Money. I'm Joel and I and Matt, 0:00:03.080 --> 0:00:26.920 and today we're discussing saving verse investing. These are two terms, 0:00:26.920 --> 0:00:29.520 saving and investing. These are two terms that we use often. 0:00:30.000 --> 0:00:31.960 These aren't terms that are new to our listeners. But 0:00:32.280 --> 0:00:35.440 there's a problem because I think oftentimes a lot of 0:00:35.440 --> 0:00:37.120 folks and I think we're even guilty of this. I 0:00:37.120 --> 0:00:40.040 think sometimes we use the terms improperly. And so in 0:00:40.120 --> 0:00:42.880 this episode, we're gonna talk about what saving actually means 0:00:42.880 --> 0:00:44.559 and when you should be doing it, and what does 0:00:44.600 --> 0:00:47.680 investing mean and when should you actually be doing that. Yeah, 0:00:47.680 --> 0:00:49.280 there there are a lot of factors that go into 0:00:49.320 --> 0:00:52.000 deciding when you should be funneling your money towards savings, 0:00:52.040 --> 0:00:54.560 when you should be funneling it towards investments, and so yeah, 0:00:54.600 --> 0:00:56.600 there's a lot to discuss here. I think it's gonna 0:00:56.600 --> 0:00:58.600 be helpful when folks were thinking about whether they should 0:00:58.600 --> 0:01:00.840 be contributing more to their Form one K or patting 0:01:00.880 --> 0:01:02.960 their savings account a little bit more so. Yeah, so 0:01:03.000 --> 0:01:05.440 I'm looking forward to getting into all the specifics on 0:01:05.440 --> 0:01:08.040 this topic. My friend. Before we get into that, let's 0:01:08.160 --> 0:01:12.120 discuss filing your taxes real quick. Yeah, because that's always fun, right, 0:01:12.160 --> 0:01:15.280 everybody loves tax season and it's upon us now. Yeah, dude, 0:01:15.360 --> 0:01:18.120 it's full on tax season now, right. Everybody's getting their 0:01:18.160 --> 0:01:20.240 W twos. If you're employed, maybe you're getting your ten 0:01:20.280 --> 0:01:23.080 ninety nines from your bank because you earn interest on 0:01:23.160 --> 0:01:26.520 your savings exactly because you have high interest savings. But 0:01:26.600 --> 0:01:29.360 it's it's full on tax season. And we wanted to 0:01:29.360 --> 0:01:31.560 mention this because the i r S Free File is 0:01:31.600 --> 0:01:34.520 now officially open for business. Right. This is at i 0:01:34.680 --> 0:01:36.640 r S dot gov and that's where you can go 0:01:36.680 --> 0:01:39.039 on and if you're gonna have a pretty straightforward tax return, 0:01:39.360 --> 0:01:41.520 that is a great place to go to be able 0:01:41.520 --> 0:01:44.760 to file your return for absolutely free. Yeah, and there 0:01:44.800 --> 0:01:47.120 are a few places you can go to fire your 0:01:47.160 --> 0:01:48.840 taxes for free that we wanted to mention. I r 0:01:48.960 --> 0:01:51.400 S Free File is one you have to make under 0:01:51.400 --> 0:01:54.640 a certain income, which is actually sixty nine dollars adjusted 0:01:54.680 --> 0:01:56.840 gross income this year to be able to file your 0:01:56.840 --> 0:01:59.200 taxes for free through the free file program. You can 0:01:59.200 --> 0:02:01.200 find that at i r talk of there are other 0:02:01.240 --> 0:02:03.520 places to where you can file your taxes for free. 0:02:03.520 --> 0:02:05.200 And I just wanted to mention to people to be 0:02:05.240 --> 0:02:10.200 aware when someone says free federal filing, that doesn't necessarily 0:02:10.240 --> 0:02:12.240 mean your whole tax filing is gonna be free, right, 0:02:12.280 --> 0:02:14.120 because there's a state filing too that you have that 0:02:14.160 --> 0:02:16.840 has to be done. And oftentimes when they tout free 0:02:16.840 --> 0:02:18.800 federal filing, it means they're going to try to charge 0:02:18.800 --> 0:02:20.680 you for the state filing at the end of it, 0:02:20.800 --> 0:02:23.440 and by the time you're completely done filling out your return, 0:02:23.680 --> 0:02:25.239 you're just gonna give in and succumb and do it 0:02:25.280 --> 0:02:26.760 because you don't want to be already done it. You 0:02:26.760 --> 0:02:29.120 don't want to go through that process again exactly. Well. Yeah, Well, 0:02:29.160 --> 0:02:31.760 that being said, credit card attacks, that is one spot 0:02:31.800 --> 0:02:34.079 where you can file for free federally and at the 0:02:34.120 --> 0:02:36.440 state level. But again, make sure you read through the 0:02:36.480 --> 0:02:39.360 details there to make sure what they do not include. Uh. 0:02:39.400 --> 0:02:41.320 In turbo tax, they have a free edition as well. 0:02:41.360 --> 0:02:43.840 If you have a really simple return, right like if 0:02:43.880 --> 0:02:46.200 you're on the standard W two income and if you 0:02:46.200 --> 0:02:48.359 know you're gonna take the standard deduction, for example, which 0:02:48.400 --> 0:02:51.240 is the vast majority of folks listening, you're probably gonna 0:02:51.280 --> 0:02:53.440 take the standard deduction. Uh. Those are some of the 0:02:53.520 --> 0:02:56.760 qualifications to be able to be eligible for the turbo 0:02:56.840 --> 0:02:59.720 tax Free edition. Yeah, and sometimes some folks you might 0:02:59.760 --> 0:03:01.920 need depending on how complicated your return is, helped from 0:03:01.919 --> 0:03:03.959 a cp A. You know, we talked about that with 0:03:04.200 --> 0:03:06.920 our our friend Keith back in December. We talked about 0:03:06.960 --> 0:03:09.000 not messing up your taxes and so, Yeah, for some folks, 0:03:09.040 --> 0:03:11.359 they might want to choose professional help. But again that's 0:03:11.360 --> 0:03:13.600 Turbot tax free credit card attacks I r s dot 0:03:13.600 --> 0:03:15.600 gov for the free file. If you choose any one 0:03:15.600 --> 0:03:17.760 of those routes, you'll be good to go. Yeah. Well, 0:03:17.800 --> 0:03:20.160 I doubt many folks are excited about taxes, but we 0:03:20.200 --> 0:03:22.720 wanted to mention this as a little friendly reminder for 0:03:22.720 --> 0:03:25.000 everyone out there. You know, you love nerdy stuff. This 0:03:25.040 --> 0:03:26.760 is something I actually do enjoy. I was gonna say, 0:03:26.800 --> 0:03:28.960 I'm surprised you haven't offered a free service for our 0:03:28.960 --> 0:03:30.960 listeners to do their taxes for them. Yeah. I like 0:03:31.000 --> 0:03:33.400 doing my own taxes, and I like doing our corporation taxes. 0:03:33.680 --> 0:03:36.320 Like stuff that involves us. I'm into that because I 0:03:36.360 --> 0:03:38.960 like to understand things fully. Other people's numbers. I don't 0:03:38.960 --> 0:03:41.520 really care about that. Alright. Well, best of luck to 0:03:41.520 --> 0:03:43.920 everyone as they file their taxes. Just make sure you're 0:03:43.960 --> 0:03:46.400 not overpaying to get those taxes done, all right, Matt, 0:03:46.480 --> 0:03:48.440 let's mention. The beer we're having on the show today 0:03:48.680 --> 0:03:51.240 are good friend Josh sent us a beer by Barrelhouse 0:03:51.240 --> 0:03:54.480 Brewing Company called Kong Double Hazy I p A. It's 0:03:54.480 --> 0:03:57.440 got Donkey Kong on the front, pretty spee label and 0:03:57.440 --> 0:03:59.680 everybody knows we like Hazy I PA. So I can't 0:03:59.680 --> 0:04:02.240 wait to crack into this one and this label. This 0:04:02.280 --> 0:04:04.880 beer totally makes me think of King of Kong. Did 0:04:04.880 --> 0:04:06.440 you ever see that movie back in the day. That's 0:04:06.440 --> 0:04:09.200 one of my favorite documentaries of all. Okay, it is amazing. 0:04:09.240 --> 0:04:11.360 If you've ever seen King of Kong, be sure to 0:04:11.360 --> 0:04:15.400 look it up. It's about these two nerds duking back 0:04:15.440 --> 0:04:18.240 and forth trying to be the world champion at the 0:04:18.360 --> 0:04:22.760 arcade version of Donkey Kong. Yeah, a fantastic movie. And honestly, 0:04:22.839 --> 0:04:24.919 when I first saw the guy who's kind of the 0:04:24.920 --> 0:04:26.480 hero that you're rooting for and the guy who's kind 0:04:26.520 --> 0:04:28.800 of the evil villain who you're rooting against, their actual 0:04:28.839 --> 0:04:31.440 real life people. But they couldn't have been cast better, honestly, 0:04:31.480 --> 0:04:34.279 because they're perfect and you're so like invested in the 0:04:34.360 --> 0:04:37.000 throughout the whole process. It's such a good movie. I mean, really, dude, 0:04:37.000 --> 0:04:39.240 it seems like one of those made up documentaries, right, 0:04:39.279 --> 0:04:42.120 like the mockumentaries I'm thinking of a Mighty wind or 0:04:42.160 --> 0:04:46.359 Best in Show, hilarious, completely made up, like they're not 0:04:46.440 --> 0:04:49.120 documentaries at all, But the story of King of Kong 0:04:49.480 --> 0:04:51.960 like it just fit within that mold so well, it's 0:04:52.000 --> 0:04:54.960 hard to believe that it's real life, completely fictations, crazy 0:04:55.000 --> 0:04:56.440 that it was real life, but so so good. So 0:04:56.480 --> 0:04:58.680 anybody who hasn't seen King of Kong go find it 0:04:58.760 --> 0:05:01.400 somewhere streaming. It's a class, it's excellent. And we'll give 0:05:01.440 --> 0:05:03.000 our thoughts on this beer at the end of the episode. 0:05:03.160 --> 0:05:05.240 But Matt, for now, let's get onto the topic of hand. 0:05:05.240 --> 0:05:08.599 We're talking about saving verse investing, and the question on 0:05:08.640 --> 0:05:10.279 a lot of people's mind should I be saving or 0:05:10.320 --> 0:05:13.160 investing my money? And what's the difference. Well, folks get 0:05:13.200 --> 0:05:16.159 confused with these terms, and of course they do, because 0:05:16.320 --> 0:05:19.360 they're often used improperly. For example, we call it saving 0:05:19.400 --> 0:05:22.080 for retirement, but actually, I'm sure I've said that before. 0:05:22.400 --> 0:05:24.120 I know I have to, I know that that's been 0:05:24.120 --> 0:05:26.760 the case. But what we actually mean when we say 0:05:26.760 --> 0:05:30.479 saving for retirement is investing for retirement and saving and 0:05:30.520 --> 0:05:33.000 investing are both important. They both have their place. It's 0:05:33.040 --> 0:05:36.240 best to think of saving money as kind of protecting 0:05:36.279 --> 0:05:38.800 your money, right, you're locking it in place, you're making 0:05:38.839 --> 0:05:41.239 a small return on it, but you're not taking any chances. 0:05:41.480 --> 0:05:43.120 And then investing, well, it's best to think of that 0:05:43.160 --> 0:05:45.880 as growing your money over a long period of time. 0:05:46.120 --> 0:05:49.440 But we should ideally be doing both simultaneously. We really 0:05:49.480 --> 0:05:52.560 need to be allocating money into both savings and investments 0:05:52.600 --> 0:05:54.960 in order to meet separate goals that we have, both 0:05:54.960 --> 0:05:57.279 short term and long term. Yeah, man, I mean, just 0:05:57.320 --> 0:05:59.599 like you said, we're fans of both saving and investing. 0:05:59.600 --> 0:06:02.280 But the m arises when we have a goal that 0:06:02.320 --> 0:06:06.360 we should be saving for, but instead we're investing that money. Right, So, 0:06:06.400 --> 0:06:09.599 typically we are saving for more short term goals, maybe 0:06:09.600 --> 0:06:11.520 to have a nice down payment for a home, to 0:06:11.640 --> 0:06:14.080 buy a car in cash. Even going on a sweet 0:06:14.120 --> 0:06:16.840 vacation can be something that you are saving towards. And 0:06:16.920 --> 0:06:18.520 keep in mind that some of these goals can take 0:06:18.560 --> 0:06:21.240 a few years to achieve, but in all those examples, 0:06:21.279 --> 0:06:23.880 you likely want to be saving your money. The other 0:06:23.960 --> 0:06:26.520 half of the problem is that sometimes we're saving money 0:06:26.600 --> 0:06:30.000 when instead we should actually be investing it right, We're 0:06:30.040 --> 0:06:32.440 investing for a longer term goals like being able to 0:06:32.520 --> 0:06:35.200 quit work or help our kids go to college. Those 0:06:35.200 --> 0:06:36.880 are all goals that are more than just a few 0:06:36.960 --> 0:06:38.680 years in the future. So we're gonna be a few 0:06:38.720 --> 0:06:41.600 considerations the things that you need to consider before you 0:06:41.680 --> 0:06:45.039 determine whether you funnel that extra cash towards your savings 0:06:45.080 --> 0:06:47.640 account or towards the investment plan, whether it's an IRA 0:06:47.839 --> 0:06:49.760 or four O one K through work. These are the 0:06:49.839 --> 0:06:52.039 questions you're gonna want to ask, Well, first, what is 0:06:52.080 --> 0:06:55.520 my time horizon? And that is actually the main indicator, 0:06:55.560 --> 0:06:57.760 the most important thing you need to think about when 0:06:57.920 --> 0:07:00.560 you're deciding where to allocate that money. If you need 0:07:00.600 --> 0:07:03.120 that money within the next five years, then you're definitely 0:07:03.160 --> 0:07:06.080 a saber. There's just too much fluctuation in the market. 0:07:06.360 --> 0:07:09.440 When you need your money back in a shorter time period. 0:07:09.640 --> 0:07:12.680 Markets can swing quite wildly over a short period of time. 0:07:12.920 --> 0:07:16.520 That's normal market behavior. The ultimate trajectory over long periods 0:07:16.520 --> 0:07:18.400 of time is up into the right when we're talking 0:07:18.400 --> 0:07:20.480 about markets, Matt. But if you're investing and you need 0:07:20.480 --> 0:07:22.360 that money back in two to three years, you could 0:07:22.360 --> 0:07:24.600 lose a whole lot of your principle, right, Yeah, Man, 0:07:24.720 --> 0:07:26.200 if you are investing, you need to be able to 0:07:26.280 --> 0:07:28.760 stick it out for the long haul because the ultimate 0:07:28.760 --> 0:07:32.760 trajectory of American businesses is one of strong growth, right, Like, 0:07:32.800 --> 0:07:35.400 we can ride out those shorter swings if we have 0:07:35.480 --> 0:07:37.960 more time at our disposal. We think that if you 0:07:37.960 --> 0:07:39.760 want to be an investor, that you're looking at a 0:07:39.800 --> 0:07:42.920 minimum time horizon of five to seven years. When you 0:07:42.960 --> 0:07:45.880 look at the historical returns, there is a much higher 0:07:45.880 --> 0:07:48.120 probability that your money is going to grow, but you 0:07:48.160 --> 0:07:50.920 could still lose money in that time period, right. That's 0:07:50.920 --> 0:07:52.840 why they always say that past performance is not a 0:07:52.840 --> 0:07:56.160 guarantee for future returns, right, So you have to understand 0:07:56.200 --> 0:07:58.480 that there is still some risk even with the timeline 0:07:58.480 --> 0:08:01.440 of at least five to seven years. Ultimately, the biggest 0:08:01.520 --> 0:08:05.080 risk is not investing at all and watching inflation erode 0:08:05.080 --> 0:08:07.680 your savings. Yeah. It essentially makes your money worth less 0:08:07.680 --> 0:08:10.200 and less over time as the cost of goods goes up, 0:08:10.480 --> 0:08:12.240 and the return that you're making on your savings is 0:08:12.560 --> 0:08:15.840 minimal and probably pitiful pretty much right now these days 0:08:15.840 --> 0:08:19.160 for savings, rates are terrible. So if you're only saving money, 0:08:19.200 --> 0:08:21.120 and you're not taking any risk, you're not investing for 0:08:21.120 --> 0:08:22.920 the future, then you will see the value of your 0:08:22.920 --> 0:08:25.360 money degrade over time. But if you need access to 0:08:25.360 --> 0:08:27.400 that money in just a few years time, you just 0:08:27.400 --> 0:08:29.680 can't take the risk of investing it. And by the way, man, 0:08:29.760 --> 0:08:31.400 there are a lot of people that have done a 0:08:31.440 --> 0:08:33.280 lot of good number crunching when it comes to investment 0:08:33.320 --> 0:08:36.240 returns over time, and it's interesting to see that typically 0:08:36.280 --> 0:08:38.360 over a five year period, typically over a ten year period, 0:08:38.480 --> 0:08:40.920 the American stock market does really, really well. There are 0:08:41.000 --> 0:08:43.400 some periods though, right where let's say you do need 0:08:43.440 --> 0:08:46.120 your money in seven years, there are some periods in 0:08:46.200 --> 0:08:48.840 the past that the American stock market has actually declined 0:08:48.880 --> 0:08:51.280 in over a seven year period where there's a negative return. Yeah, 0:08:51.440 --> 0:08:54.200 they're rare, they're few and far between, but they do exist. 0:08:54.240 --> 0:08:56.080 So that is something to know. Even though we're advocating 0:08:56.080 --> 0:08:58.360 a timeline along those lines, if you don't need that 0:08:58.360 --> 0:09:01.079 money for at least five years per completely seven, you 0:09:01.080 --> 0:09:03.120 should be investing. You know that there is still a 0:09:03.200 --> 0:09:05.199 chance that you will have less money than you started 0:09:05.240 --> 0:09:07.840 with if you chose to invest instead of save. Yeah, Joel, 0:09:07.840 --> 0:09:10.240 So that is an important consideration right there. There is 0:09:10.280 --> 0:09:12.640 not a guaranteed that you're always going to grow your 0:09:12.640 --> 0:09:15.280 money within that five year time period. It's definitely something 0:09:15.320 --> 0:09:17.560 to consider. And there are some other considerations as well 0:09:17.640 --> 0:09:19.640 that we want you to be keeping in mind when 0:09:19.640 --> 0:09:21.760 you are deciding whether you should be saving and when 0:09:21.760 --> 0:09:23.800 you should be investing. We're gonna get to those right 0:09:23.840 --> 0:09:35.160 after the break. All right, Joel, we're back from the 0:09:35.160 --> 0:09:38.720 break talking about saving versus investing, and man before we 0:09:38.800 --> 0:09:41.080 dive into more these other aspects that we want folks 0:09:41.120 --> 0:09:43.040 to keep in mind. I think sometimes the trap that 0:09:43.080 --> 0:09:45.680 we fall into when we should be saving our money 0:09:45.720 --> 0:09:48.720 but instead we're investing, is because savings sounds so boring, 0:09:49.120 --> 0:09:51.640 doesn't it Like it is not sexy at all? Or 0:09:51.720 --> 0:09:55.360 as investing that seems like sophisticated and polished, you know, 0:09:55.440 --> 0:09:57.679 like saving that sounds super passive. You're just kind of 0:09:57.760 --> 0:10:00.240 I'm just saving my money, You're just squirreling it away. Yeah, 0:10:00.240 --> 0:10:02.520 you're not really doing anything exciting with it. I know. 0:10:02.640 --> 0:10:04.240 That's what happened to me when I was younger. Actually, 0:10:04.320 --> 0:10:06.320 like when I started my roth Ira for the first time, 0:10:06.760 --> 0:10:08.839 I heard that that was something that you're supposed to do. 0:10:09.280 --> 0:10:11.400 I had zero money in savings in the bank, like, 0:10:11.400 --> 0:10:14.040 I didn't have an emergency fund, nothing. But I started 0:10:14.040 --> 0:10:16.120 my roth IRA and that didn't pan out so well 0:10:16.200 --> 0:10:18.040 because I had a tap that money because I was 0:10:18.080 --> 0:10:23.520 broke right after college and I completely withdrew those contributions 0:10:23.840 --> 0:10:26.280 and that's just not the best move financially. Sure, yeah, yeah, 0:10:26.400 --> 0:10:28.800 I mean the roth IRA is nice because it has 0:10:28.880 --> 0:10:31.079 a little bit more flexibility. Right, you were able to 0:10:31.120 --> 0:10:33.000 tap those contributions, and we'll talk about that in just 0:10:33.040 --> 0:10:37.120 a second. But typically retirement accounts offer very little access 0:10:37.480 --> 0:10:39.400 to the funds once you put them in, and that 0:10:39.440 --> 0:10:41.000 brings us to the next thing that you really have 0:10:41.080 --> 0:10:43.560 to consider before you decide whether you're going to be 0:10:43.559 --> 0:10:46.959 a saver or an investor, and that's liquidity. Liquidity is 0:10:47.000 --> 0:10:50.040 basically saying how easy is it to access the funds 0:10:50.320 --> 0:10:52.760 that you're putting away. Investing your money will make it 0:10:52.840 --> 0:10:55.960 harder for you to access. Retirement accounts have rules to 0:10:56.000 --> 0:10:58.320 prevent us from treating them like piggy banks and saving 0:10:58.320 --> 0:11:00.480 these accounts, right, You're gonna be subject to access and 0:11:00.520 --> 0:11:02.760 fees if you pull money out of a traditional IRA 0:11:02.920 --> 0:11:04.880 or a four oh n K. There are so many 0:11:04.880 --> 0:11:07.800 issues when you're trying to access retirement funds before you 0:11:07.840 --> 0:11:10.240 hit retirement age. So you better be darn sure that 0:11:10.280 --> 0:11:13.800 you are okay not touching that money before you put 0:11:13.840 --> 0:11:16.079 it inside one of those accounts. And this is good 0:11:16.160 --> 0:11:18.160 because you want the money you have invested to stay 0:11:18.160 --> 0:11:20.679 put and work for you over a long period of time. 0:11:20.880 --> 0:11:22.560 And by the way, man, if we're talking about investing 0:11:22.600 --> 0:11:25.160 in real estate as opposed to investing in the stock market, 0:11:25.200 --> 0:11:28.480 well that poses pretty major liquidity risks to write. Like 0:11:28.679 --> 0:11:31.839 having an individual property and then trying to sell it, Well, 0:11:31.840 --> 0:11:33.920 you're gonna pay commissions to a real estate agent and 0:11:33.920 --> 0:11:35.600 that house could be on the market for months. So 0:11:35.960 --> 0:11:38.240 the same thing goes when you're talking about investing in 0:11:38.240 --> 0:11:41.400 retirement accounts or investing in a single family home. Either 0:11:41.440 --> 0:11:43.640 way you slice it, investing your money is going to 0:11:43.679 --> 0:11:46.760 prevent easy access for you using that money in the 0:11:46.760 --> 0:11:49.679 near term. That's right. And the rath Ira, just like 0:11:49.679 --> 0:11:51.840 we just mentioned, right, it does offer a bit more 0:11:52.000 --> 0:11:53.679 of the middle ground here, like and that's part of 0:11:53.720 --> 0:11:55.120 the reason we do like it is that you can 0:11:55.120 --> 0:11:57.880 withdraw contributions at any time for whatever you want. But 0:11:57.960 --> 0:12:00.480 just keep in mind that this doesn't mean you should, 0:12:00.640 --> 0:12:03.040 but you can. Yeah. Like, just like you said, Matt, 0:12:03.280 --> 0:12:05.240 you were able to withdraw all your contributions and you 0:12:05.240 --> 0:12:07.280 didn't lose money, But that might not be the case 0:12:07.320 --> 0:12:08.840 for a lot of people because I've been a down 0:12:08.840 --> 0:12:11.120 market and I would have lost a lot of money. Dude. Yeah, 0:12:11.160 --> 0:12:13.480 if there's a bad six month time period and the 0:12:13.520 --> 0:12:16.040 stock market goes down, well, you can still pull out 0:12:16.040 --> 0:12:18.560 your contributions. There's just less of your contribution sitting there 0:12:18.600 --> 0:12:20.280 for you to pull. Yeah, And we're also not fond 0:12:20.320 --> 0:12:22.560 of taking out four O n K loans or tapping 0:12:22.559 --> 0:12:25.959 a retirement account like a traditional IRA. We would recommend 0:12:25.960 --> 0:12:28.480 that you consider that money untouchable. And so if you 0:12:28.520 --> 0:12:31.480 think you'll need access to those funds earlier than you're 0:12:31.520 --> 0:12:34.240 late fifties, that just don't invest that money into a 0:12:34.320 --> 0:12:37.360 retirement account. You can still invest that money, but maybe 0:12:37.400 --> 0:12:39.400 you would want to invest that in a brokerage account 0:12:39.440 --> 0:12:42.400 where you won't get penalized for making those larger withdrawals. 0:12:42.559 --> 0:12:44.720 You'll just pay capital gains tax on the earnings. But 0:12:44.840 --> 0:12:46.760 if you have a longer time horizon, a roth IRA 0:12:46.920 --> 0:12:49.920 or a brokerage account are definitely good ways to funnel 0:12:49.960 --> 0:12:51.880 your money. But Matt, when it comes to liquidity, when 0:12:51.880 --> 0:12:54.319 we're talking about savings, while popping your funds into a 0:12:54.360 --> 0:12:56.960 savings or checking account means you can grab it basically 0:12:57.000 --> 0:12:58.959 any time. Right, there's no hoops to jump through. You 0:12:58.960 --> 0:13:00.760 don't have to sell any funds in order to liquidate 0:13:00.840 --> 0:13:02.439 that money. And if we're talking about a rental house, 0:13:02.440 --> 0:13:03.520 you don't have to put it on the market and 0:13:03.520 --> 0:13:05.520 go through all that rigormarole. You can just grab the 0:13:05.520 --> 0:13:07.839 money when you need it. And this is obviously great 0:13:08.000 --> 0:13:10.000 if you've been house hunting and you're looking for like 0:13:10.040 --> 0:13:12.520 the perfect deal to pounce on. That money is ready 0:13:12.559 --> 0:13:14.800 to go, it's sitting there in your account. But this 0:13:14.880 --> 0:13:18.200 is also the biggest downside to money in our savings accounts. 0:13:18.320 --> 0:13:20.600 It's ready to go, it's right there for us to access, 0:13:20.800 --> 0:13:23.120 and it takes more self control and discipline for us 0:13:23.160 --> 0:13:26.120 not to blow that money. So when we're talking about liquidity, right, 0:13:26.120 --> 0:13:27.880 there's like a good side and a bad side. It's 0:13:27.960 --> 0:13:30.040 very good to have access to liquid cash in case 0:13:30.040 --> 0:13:32.240 an emergency comes up or we're actually saving for a goal. 0:13:32.280 --> 0:13:34.920 But the flip side of liquidity means that it's easier 0:13:34.960 --> 0:13:37.360 for us to access and maybe we choose to access 0:13:37.400 --> 0:13:39.440 it for a reason that's not actually beneficial for us, 0:13:39.440 --> 0:13:41.000 And and that would be the time we're having your 0:13:41.000 --> 0:13:44.240 money stashed away in savings or a checking account can 0:13:44.280 --> 0:13:46.720 actually hurt us. We might be tempted to buy stuff 0:13:46.760 --> 0:13:49.720 with it today instead of setting it aside and investing 0:13:49.760 --> 0:13:51.319 it for the long term. That's right, You've got to 0:13:51.360 --> 0:13:53.319 have a little bit more discipline if you're gonna have 0:13:53.520 --> 0:13:57.200 a beefy savings account, so Joel. Another major difference before 0:13:57.240 --> 0:13:59.800 we decide whether to save or invest our money is 0:14:00.040 --> 0:14:02.320 rate of return. When you say your money, it's not 0:14:02.320 --> 0:14:04.839 going to make you wealthy, right especially not right now. 0:14:05.080 --> 0:14:07.880 In fact, rates are so low currently that we're not 0:14:07.920 --> 0:14:10.720 even earning enough to cover the rate of inflation. We 0:14:10.760 --> 0:14:13.040 mentioned this on a recent Ask How the Money episode, 0:14:13.480 --> 0:14:16.080 But savings rates have been dropping, which is a huge 0:14:16.120 --> 0:14:18.800 downside to putting your money in savings accounts right now. 0:14:19.240 --> 0:14:22.520 They won't be crazy low forever, but it's hard to 0:14:22.560 --> 0:14:25.480 know how long rates will be depressed. But honestly, that's 0:14:25.480 --> 0:14:27.080 just the price we have to pay right now. If 0:14:27.120 --> 0:14:29.480 you want to have easy access to money, because you 0:14:29.480 --> 0:14:31.680 want to use that money for a short term goal. Yeah, 0:14:31.720 --> 0:14:34.360 you just gotta deal with declining savings rates, and it stinks. 0:14:34.520 --> 0:14:35.600 And I think that is one of the things that 0:14:35.720 --> 0:14:39.000 is tempting probably more people to invest our money instead 0:14:39.000 --> 0:14:41.280 of saving. And it's like declining rates, the stock markets 0:14:41.280 --> 0:14:44.360 booming been blowing up. Maybe I should be investing more 0:14:44.360 --> 0:14:46.840 of my money, and maybe you should be, but also 0:14:47.000 --> 0:14:48.840 maybe you shouldn't. Right, So let's talking about investing the 0:14:48.880 --> 0:14:50.920 rate to return there, that's something we do need to 0:14:50.920 --> 0:14:54.080 take into consideration. Investing is attractive because we can get 0:14:54.360 --> 0:14:56.920 much higher rates of return over time. For instance, Matt 0:14:57.080 --> 0:15:01.560 SMPI return last year. I mean, that's incredible, right, and 0:15:01.600 --> 0:15:04.200 you're pretty sweet. Yeah, your average savings account had a 0:15:04.240 --> 0:15:08.240 return of what probably two point I'm guessing it's way 0:15:08.320 --> 0:15:10.960 less than that. Okay, national average is much much lower, 0:15:11.000 --> 0:15:13.200 but I'm talking about our high interest savings accounts that 0:15:13.200 --> 0:15:15.160 we talk about. Yeah, those were up near those lofty 0:15:15.280 --> 0:15:18.160 rates or semi lofty lofty rates of two and a quarter. Yeah. Yeah, 0:15:18.280 --> 0:15:19.960 but now they've dipped down to the one point seven 0:15:20.040 --> 0:15:22.320 one point eight range, so they're they're even lower. And 0:15:22.400 --> 0:15:24.200 just seeing that stat might make you say, all right, 0:15:24.200 --> 0:15:25.800 I need to be investing more in my money, but 0:15:25.880 --> 0:15:28.920 you can't predict the immediate future, and the exact opposite 0:15:28.920 --> 0:15:31.840 could happen this year. So rate of return is a 0:15:31.920 --> 0:15:35.400 known commodity when we're talking about savings, but it's very 0:15:35.480 --> 0:15:38.440 unknown on a short time horizon. If we choose to 0:15:38.440 --> 0:15:41.640 be an investor, investing can lure should be savers because 0:15:41.680 --> 0:15:43.920 of the promise of greater returns, But that can also 0:15:43.960 --> 0:15:46.800 put us in an uncomfortable position by investing money that 0:15:46.840 --> 0:15:49.720 we need liquid access to. So if we're investing in 0:15:49.760 --> 0:15:51.640 that manner, if we're thinking of it on a short 0:15:51.680 --> 0:15:55.400 time horizon, then it's more like gambling. It's it's less 0:15:55.400 --> 0:15:57.800 making a wise decision for the future, and we're taking 0:15:57.880 --> 0:16:01.320 a bad approach. We're basically gambling on term economic results. 0:16:01.480 --> 0:16:04.440 And Joel, you mentioning last year's rate of return right 0:16:04.560 --> 0:16:06.520 in the stock market, it makes me think of not 0:16:06.600 --> 0:16:08.760 just last year, but the past eleven years. Like I 0:16:08.760 --> 0:16:11.560 think about all of our listeners who maybe have only 0:16:11.760 --> 0:16:14.000 known a bowl market. Maybe they got a job right 0:16:14.000 --> 0:16:16.360 out of college ten years ago, eleven years ago, they 0:16:16.400 --> 0:16:19.280 graduated in No. Nine right like this investing things easy? Yeah, 0:16:19.280 --> 0:16:20.840 this is so easy. You just put your money here 0:16:20.880 --> 0:16:23.920 and it grows like crazy, because that has been what 0:16:23.960 --> 0:16:26.160 we've seen over the past eleven years. But we know 0:16:26.200 --> 0:16:28.640 from history that this is not normal. Like, I'm not 0:16:28.680 --> 0:16:30.720 at all saying that the market is going to crash soon, 0:16:31.040 --> 0:16:34.720 but this upward trend of eleven straight years of growth 0:16:35.200 --> 0:16:37.040 is it's not normal, and it's not something that we 0:16:37.040 --> 0:16:39.520 can count on. It's literally the longest bowl market in 0:16:39.760 --> 0:16:42.760 United history exactly. And so I think if we get 0:16:42.800 --> 0:16:44.600 too comfortable with that, or if that's all that we're 0:16:44.600 --> 0:16:46.960 looking at, we're only looking at the past decade, we're 0:16:46.960 --> 0:16:48.840 gonna think that, well, of course I can throw money 0:16:48.960 --> 0:16:50.960 into the market for the short term, it's only gonna 0:16:50.960 --> 0:16:52.880 go up. But that is not the case. And so 0:16:52.920 --> 0:16:55.400 if you end up investing that money in an attempt 0:16:55.520 --> 0:16:58.200 to maximize your profit, well, if you need that money 0:16:58.200 --> 0:17:00.520 for more near term goals, you might find yourself in 0:17:00.520 --> 0:17:02.680 a tough position when the time comes for you to 0:17:02.720 --> 0:17:06.560 actually withdraw that money. If we've seen a market correction, yeah, man, 0:17:06.600 --> 0:17:08.760 I mean talking rate of return, that's definitely something that 0:17:08.800 --> 0:17:11.480 we have to take into consideration. And you're talking about 0:17:11.480 --> 0:17:14.800 the exuberance essentially that people can have correlated with investing 0:17:14.880 --> 0:17:17.440 in the stock market. The same is true in the 0:17:17.480 --> 0:17:20.239 housing market. And I think sometimes people assume that just 0:17:20.320 --> 0:17:22.720 because things have gone well in housing boom, I should 0:17:22.760 --> 0:17:24.280 get in there, I should invest my money. I need 0:17:24.320 --> 0:17:26.800 to be a part of that. But just know that again, 0:17:27.320 --> 0:17:29.560 prior history, the past five years or ten years of 0:17:29.600 --> 0:17:31.760