Speaker 1: Welcome to How the Money. I'm Joel and I and Matt,
Speaker 1: and today we're discussing saving verse investing. These are two terms,
Speaker 1: saving and investing. These are two terms that we use often.
Speaker 1: These aren't terms that are new to our listeners. But
Speaker 1: there's a problem because I think oftentimes a lot of
Speaker 1: folks and I think we're even guilty of this. I
Speaker 1: think sometimes we use the terms improperly. And so in
Speaker 1: this episode, we're gonna talk about what saving actually means
Speaker 1: and when you should be doing it, and what does
Speaker 1: investing mean and when should you actually be doing that. Yeah,
Speaker 1: there there are a lot of factors that go into
Speaker 1: deciding when you should be funneling your money towards savings,
Speaker 1: when you should be funneling it towards investments, and so yeah,
Speaker 1: there's a lot to discuss here. I think it's gonna
Speaker 1: be helpful when folks were thinking about whether they should
Speaker 1: be contributing more to their Form one K or patting
Speaker 1: their savings account a little bit more so. Yeah, so
Speaker 1: I'm looking forward to getting into all the specifics on
Speaker 1: this topic. My friend. Before we get into that, let's
Speaker 1: discuss filing your taxes real quick. Yeah, because that's always fun, right,
Speaker 1: everybody loves tax season and it's upon us now. Yeah, dude,
Speaker 1: it's full on tax season now, right. Everybody's getting their
Speaker 1: W twos. If you're employed, maybe you're getting your ten
Speaker 1: ninety nines from your bank because you earn interest on
Speaker 1: your savings exactly because you have high interest savings. But
Speaker 1: it's it's full on tax season. And we wanted to
Speaker 1: mention this because the i r S Free File is
Speaker 1: now officially open for business. Right. This is at i
Speaker 1: r S dot gov and that's where you can go
Speaker 1: on and if you're gonna have a pretty straightforward tax return,
Speaker 1: that is a great place to go to be able
Speaker 1: to file your return for absolutely free. Yeah, and there
Speaker 1: are a few places you can go to fire your
Speaker 1: taxes for free that we wanted to mention. I r
Speaker 1: S Free File is one you have to make under
Speaker 1: a certain income, which is actually sixty nine dollars adjusted
Speaker 1: gross income this year to be able to file your
Speaker 1: taxes for free through the free file program. You can
Speaker 1: find that at i r talk of there are other
Speaker 1: places to where you can file your taxes for free.
Speaker 1: And I just wanted to mention to people to be
Speaker 1: aware when someone says free federal filing, that doesn't necessarily
Speaker 1: mean your whole tax filing is gonna be free, right,
Speaker 1: because there's a state filing too that you have that
Speaker 1: has to be done. And oftentimes when they tout free
Speaker 1: federal filing, it means they're going to try to charge
Speaker 1: you for the state filing at the end of it,
Speaker 1: and by the time you're completely done filling out your return,
Speaker 1: you're just gonna give in and succumb and do it
Speaker 1: because you don't want to be already done it. You
Speaker 1: don't want to go through that process again exactly. Well. Yeah, Well,
Speaker 1: that being said, credit card attacks, that is one spot
Speaker 1: where you can file for free federally and at the
Speaker 1: state level. But again, make sure you read through the
Speaker 1: details there to make sure what they do not include. Uh.
Speaker 1: In turbo tax, they have a free edition as well.
Speaker 1: If you have a really simple return, right like if
Speaker 1: you're on the standard W two income and if you
Speaker 1: know you're gonna take the standard deduction, for example, which
Speaker 1: is the vast majority of folks listening, you're probably gonna
Speaker 1: take the standard deduction. Uh. Those are some of the
Speaker 1: qualifications to be able to be eligible for the turbo
Speaker 1: tax Free edition. Yeah, and sometimes some folks you might
Speaker 1: need depending on how complicated your return is, helped from
Speaker 1: a cp A. You know, we talked about that with
Speaker 1: our our friend Keith back in December. We talked about
Speaker 1: not messing up your taxes and so, Yeah, for some folks,
Speaker 1: they might want to choose professional help. But again that's
Speaker 1: Turbot tax free credit card attacks I r s dot
Speaker 1: gov for the free file. If you choose any one
Speaker 1: of those routes, you'll be good to go. Yeah. Well,
Speaker 1: I doubt many folks are excited about taxes, but we
Speaker 1: wanted to mention this as a little friendly reminder for
Speaker 1: everyone out there. You know, you love nerdy stuff. This
Speaker 1: is something I actually do enjoy. I was gonna say,
Speaker 1: I'm surprised you haven't offered a free service for our
Speaker 1: listeners to do their taxes for them. Yeah. I like
Speaker 1: doing my own taxes, and I like doing our corporation taxes.
Speaker 1: Like stuff that involves us. I'm into that because I
Speaker 1: like to understand things fully. Other people's numbers. I don't
Speaker 1: really care about that. Alright. Well, best of luck to
Speaker 1: everyone as they file their taxes. Just make sure you're
Speaker 1: not overpaying to get those taxes done, all right, Matt,
Speaker 1: let's mention. The beer we're having on the show today
Speaker 1: are good friend Josh sent us a beer by Barrelhouse
Speaker 1: Brewing Company called Kong Double Hazy I p A. It's
Speaker 1: got Donkey Kong on the front, pretty spee label and
Speaker 1: everybody knows we like Hazy I PA. So I can't
Speaker 1: wait to crack into this one and this label. This
Speaker 1: beer totally makes me think of King of Kong. Did
Speaker 1: you ever see that movie back in the day. That's
Speaker 1: one of my favorite documentaries of all. Okay, it is amazing.
Speaker 1: If you've ever seen King of Kong, be sure to
Speaker 1: look it up. It's about these two nerds duking back
Speaker 1: and forth trying to be the world champion at the
Speaker 1: arcade version of Donkey Kong. Yeah, a fantastic movie. And honestly,
Speaker 1: when I first saw the guy who's kind of the
Speaker 1: hero that you're rooting for and the guy who's kind
Speaker 1: of the evil villain who you're rooting against, their actual
Speaker 1: real life people. But they couldn't have been cast better, honestly,
Speaker 1: because they're perfect and you're so like invested in the
Speaker 1: throughout the whole process. It's such a good movie. I mean, really, dude,
Speaker 1: it seems like one of those made up documentaries, right,
Speaker 1: like the mockumentaries I'm thinking of a Mighty wind or
Speaker 1: Best in Show, hilarious, completely made up, like they're not
Speaker 1: documentaries at all, But the story of King of Kong
Speaker 1: like it just fit within that mold so well, it's
Speaker 1: hard to believe that it's real life, completely fictations, crazy
Speaker 1: that it was real life, but so so good. So
Speaker 1: anybody who hasn't seen King of Kong go find it
Speaker 1: somewhere streaming. It's a class, it's excellent. And we'll give
Speaker 1: our thoughts on this beer at the end of the episode.
Speaker 1: But Matt, for now, let's get onto the topic of hand.
Speaker 1: We're talking about saving verse investing, and the question on
Speaker 1: a lot of people's mind should I be saving or
Speaker 1: investing my money? And what's the difference. Well, folks get
Speaker 1: confused with these terms, and of course they do, because
Speaker 1: they're often used improperly. For example, we call it saving
Speaker 1: for retirement, but actually, I'm sure I've said that before.
Speaker 1: I know I have to, I know that that's been
Speaker 1: the case. But what we actually mean when we say
Speaker 1: saving for retirement is investing for retirement and saving and
Speaker 1: investing are both important. They both have their place. It's
Speaker 1: best to think of saving money as kind of protecting
Speaker 1: your money, right, you're locking it in place, you're making
Speaker 1: a small return on it, but you're not taking any chances.
Speaker 1: And then investing, well, it's best to think of that
Speaker 1: as growing your money over a long period of time.
Speaker 1: But we should ideally be doing both simultaneously. We really
Speaker 1: need to be allocating money into both savings and investments
Speaker 1: in order to meet separate goals that we have, both
Speaker 1: short term and long term. Yeah, man, I mean, just
Speaker 1: like you said, we're fans of both saving and investing.
Speaker 1: But the m arises when we have a goal that
Speaker 1: we should be saving for, but instead we're investing that money. Right, So,
Speaker 1: typically we are saving for more short term goals, maybe
Speaker 1: to have a nice down payment for a home, to
Speaker 1: buy a car in cash. Even going on a sweet
Speaker 1: vacation can be something that you are saving towards. And
Speaker 1: keep in mind that some of these goals can take
Speaker 1: a few years to achieve, but in all those examples,
Speaker 1: you likely want to be saving your money. The other
Speaker 1: half of the problem is that sometimes we're saving money
Speaker 1: when instead we should actually be investing it right, We're
Speaker 1: investing for a longer term goals like being able to
Speaker 1: quit work or help our kids go to college. Those
Speaker 1: are all goals that are more than just a few
Speaker 1: years in the future. So we're gonna be a few
Speaker 1: considerations the things that you need to consider before you
Speaker 1: determine whether you funnel that extra cash towards your savings
Speaker 1: account or towards the investment plan, whether it's an IRA
Speaker 1: or four O one K through work. These are the
Speaker 1: questions you're gonna want to ask, Well, first, what is
Speaker 1: my time horizon? And that is actually the main indicator,
Speaker 1: the most important thing you need to think about when
Speaker 1: you're deciding where to allocate that money. If you need
Speaker 1: that money within the next five years, then you're definitely
Speaker 1: a saber. There's just too much fluctuation in the market.
Speaker 1: When you need your money back in a shorter time period.
Speaker 1: Markets can swing quite wildly over a short period of time.
Speaker 1: That's normal market behavior. The ultimate trajectory over long periods
Speaker 1: of time is up into the right when we're talking
Speaker 1: about markets, Matt. But if you're investing and you need
Speaker 1: that money back in two to three years, you could
Speaker 1: lose a whole lot of your principle, right, Yeah, Man,
Speaker 1: if you are investing, you need to be able to
Speaker 1: stick it out for the long haul because the ultimate
Speaker 1: trajectory of American businesses is one of strong growth, right, Like,
Speaker 1: we can ride out those shorter swings if we have
Speaker 1: more time at our disposal. We think that if you
Speaker 1: want to be an investor, that you're looking at a
Speaker 1: minimum time horizon of five to seven years. When you
Speaker 1: look at the historical returns, there is a much higher
Speaker 1: probability that your money is going to grow, but you
Speaker 1: could still lose money in that time period, right. That's
Speaker 1: why they always say that past performance is not a
Speaker 1: guarantee for future returns, right, So you have to understand
Speaker 1: that there is still some risk even with the timeline
Speaker 1: of at least five to seven years. Ultimately, the biggest
Speaker 1: risk is not investing at all and watching inflation erode
Speaker 1: your savings. Yeah. It essentially makes your money worth less
Speaker 1: and less over time as the cost of goods goes up,
Speaker 1: and the return that you're making on your savings is
Speaker 1: minimal and probably pitiful pretty much right now these days
Speaker 1: for savings, rates are terrible. So if you're only saving money,
Speaker 1: and you're not taking any risk, you're not investing for
Speaker 1: the future, then you will see the value of your
Speaker 1: money degrade over time. But if you need access to
Speaker 1: that money in just a few years time, you just
Speaker 1: can't take the risk of investing it. And by the way, man,
Speaker 1: there are a lot of people that have done a
Speaker 1: lot of good number crunching when it comes to investment
Speaker 1: returns over time, and it's interesting to see that typically
Speaker 1: over a five year period, typically over a ten year period,
Speaker 1: the American stock market does really, really well. There are
Speaker 1: some periods though, right where let's say you do need
Speaker 1: your money in seven years, there are some periods in
Speaker 1: the past that the American stock market has actually declined
Speaker 1: in over a seven year period where there's a negative return. Yeah,
Speaker 1: they're rare, they're few and far between, but they do exist.
Speaker 1: So that is something to know. Even though we're advocating
Speaker 1: a timeline along those lines, if you don't need that
Speaker 1: money for at least five years per completely seven, you
Speaker 1: should be investing. You know that there is still a
Speaker 1: chance that you will have less money than you started
Speaker 1: with if you chose to invest instead of save. Yeah, Joel,
Speaker 1: So that is an important consideration right there. There is
Speaker 1: not a guaranteed that you're always going to grow your
Speaker 1: money within that five year time period. It's definitely something
Speaker 1: to consider. And there are some other considerations as well
Speaker 1: that we want you to be keeping in mind when
Speaker 1: you are deciding whether you should be saving and when
Speaker 1: you should be investing. We're gonna get to those right
Speaker 1: after the break. All right, Joel, we're back from the
Speaker 1: break talking about saving versus investing, and man before we
Speaker 1: dive into more these other aspects that we want folks
Speaker 1: to keep in mind. I think sometimes the trap that
Speaker 1: we fall into when we should be saving our money
Speaker 1: but instead we're investing, is because savings sounds so boring,
Speaker 1: doesn't it Like it is not sexy at all? Or
Speaker 1: as investing that seems like sophisticated and polished, you know,
Speaker 1: like saving that sounds super passive. You're just kind of
Speaker 1: I'm just saving my money, You're just squirreling it away. Yeah,
Speaker 1: you're not really doing anything exciting with it. I know.
Speaker 1: That's what happened to me when I was younger. Actually,
Speaker 1: like when I started my roth Ira for the first time,
Speaker 1: I heard that that was something that you're supposed to do.
Speaker 1: I had zero money in savings in the bank, like,
Speaker 1: I didn't have an emergency fund, nothing. But I started
Speaker 1: my roth IRA and that didn't pan out so well
Speaker 1: because I had a tap that money because I was
Speaker 1: broke right after college and I completely withdrew those contributions
Speaker 1: and that's just not the best move financially. Sure, yeah, yeah,
Speaker 1: I mean the roth IRA is nice because it has
Speaker 1: a little bit more flexibility. Right, you were able to
Speaker 1: tap those contributions, and we'll talk about that in just
Speaker 1: a second. But typically retirement accounts offer very little access
Speaker 1: to the funds once you put them in, and that
Speaker 1: brings us to the next thing that you really have
Speaker 1: to consider before you decide whether you're going to be
Speaker 1: a saver or an investor, and that's liquidity. Liquidity is
Speaker 1: basically saying how easy is it to access the funds
Speaker 1: that you're putting away. Investing your money will make it
Speaker 1: harder for you to access. Retirement accounts have rules to
Speaker 1: prevent us from treating them like piggy banks and saving
Speaker 1: these accounts, right, You're gonna be subject to access and
Speaker 1: fees if you pull money out of a traditional IRA
Speaker 1: or a four oh n K. There are so many
Speaker 1: issues when you're trying to access retirement funds before you
Speaker 1: hit retirement age. So you better be darn sure that
Speaker 1: you are okay not touching that money before you put
Speaker 1: it inside one of those accounts. And this is good
Speaker 1: because you want the money you have invested to stay
Speaker 1: put and work for you over a long period of time.
Speaker 1: And by the way, man, if we're talking about investing
Speaker 1: in real estate as opposed to investing in the stock market,
Speaker 1: well that poses pretty major liquidity risks to write. Like
Speaker 1: having an individual property and then trying to sell it, Well,
Speaker 1: you're gonna pay commissions to a real estate agent and
Speaker 1: that house could be on the market for months. So
Speaker 1: the same thing goes when you're talking about investing in
Speaker 1: retirement accounts or investing in a single family home. Either
Speaker 1: way you slice it, investing your money is going to
Speaker 1: prevent easy access for you using that money in the
Speaker 1: near term. That's right. And the rath Ira, just like
Speaker 1: we just mentioned, right, it does offer a bit more
Speaker 1: of the middle ground here, like and that's part of
Speaker 1: the reason we do like it is that you can
Speaker 1: withdraw contributions at any time for whatever you want. But
Speaker 1: just keep in mind that this doesn't mean you should,
Speaker 1: but you can. Yeah. Like, just like you said, Matt,
Speaker 1: you were able to withdraw all your contributions and you
Speaker 1: didn't lose money, But that might not be the case
Speaker 1: for a lot of people because I've been a down
Speaker 1: market and I would have lost a lot of money. Dude. Yeah,
Speaker 1: if there's a bad six month time period and the
Speaker 1: stock market goes down, well, you can still pull out
Speaker 1: your contributions. There's just less of your contribution sitting there
Speaker 1: for you to pull. Yeah, And we're also not fond
Speaker 1: of taking out four O n K loans or tapping
Speaker 1: a retirement account like a traditional IRA. We would recommend
Speaker 1: that you consider that money untouchable. And so if you
Speaker 1: think you'll need access to those funds earlier than you're
Speaker 1: late fifties, that just don't invest that money into a
Speaker 1: retirement account. You can still invest that money, but maybe
Speaker 1: you would want to invest that in a brokerage account
Speaker 1: where you won't get penalized for making those larger withdrawals.
Speaker 1: You'll just pay capital gains tax on the earnings. But
Speaker 1: if you have a longer time horizon, a roth IRA
Speaker 1: or a brokerage account are definitely good ways to funnel
Speaker 1: your money. But Matt, when it comes to liquidity, when
Speaker 1: we're talking about savings, while popping your funds into a
Speaker 1: savings or checking account means you can grab it basically
Speaker 1: any time. Right, there's no hoops to jump through. You
Speaker 1: don't have to sell any funds in order to liquidate
Speaker 1: that money. And if we're talking about a rental house,
Speaker 1: you don't have to put it on the market and
Speaker 1: go through all that rigormarole. You can just grab the
Speaker 1: money when you need it. And this is obviously great
Speaker 1: if you've been house hunting and you're looking for like
Speaker 1: the perfect deal to pounce on. That money is ready
Speaker 1: to go, it's sitting there in your account. But this
Speaker 1: is also the biggest downside to money in our savings accounts.
Speaker 1: It's ready to go, it's right there for us to access,
Speaker 1: and it takes more self control and discipline for us
Speaker 1: not to blow that money. So when we're talking about liquidity, right,
Speaker 1: there's like a good side and a bad side. It's
Speaker 1: very good to have access to liquid cash in case
Speaker 1: an emergency comes up or we're actually saving for a goal.
Speaker 1: But the flip side of liquidity means that it's easier
Speaker 1: for us to access and maybe we choose to access
Speaker 1: it for a reason that's not actually beneficial for us,
Speaker 1: And and that would be the time we're having your
Speaker 1: money stashed away in savings or a checking account can
Speaker 1: actually hurt us. We might be tempted to buy stuff
Speaker 1: with it today instead of setting it aside and investing
Speaker 1: it for the long term. That's right, You've got to
Speaker 1: have a little bit more discipline if you're gonna have
Speaker 1: a beefy savings account, so Joel. Another major difference before
Speaker 1: we decide whether to save or invest our money is
Speaker 1: rate of return. When you say your money, it's not
Speaker 1: going to make you wealthy, right especially not right now.
Speaker 1: In fact, rates are so low currently that we're not
Speaker 1: even earning enough to cover the rate of inflation. We
Speaker 1: mentioned this on a recent Ask How the Money episode,
Speaker 1: But savings rates have been dropping, which is a huge
Speaker 1: downside to putting your money in savings accounts right now.
Speaker 1: They won't be crazy low forever, but it's hard to
Speaker 1: know how long rates will be depressed. But honestly, that's
Speaker 1: just the price we have to pay right now. If
Speaker 1: you want to have easy access to money, because you
Speaker 1: want to use that money for a short term goal. Yeah,
Speaker 1: you just gotta deal with declining savings rates, and it stinks.
Speaker 1: And I think that is one of the things that
Speaker 1: is tempting probably more people to invest our money instead
Speaker 1: of saving. And it's like declining rates, the stock markets
Speaker 1: booming been blowing up. Maybe I should be investing more
Speaker 1: of my money, and maybe you should be, but also
Speaker 1: maybe you shouldn't. Right, So let's talking about investing the
Speaker 1: rate to return there, that's something we do need to
Speaker 1: take into consideration. Investing is attractive because we can get
Speaker 1: much higher rates of return over time. For instance, Matt
Speaker 1: SMPI return last year. I mean, that's incredible, right, and
Speaker 1: you're pretty sweet. Yeah, your average savings account had a
Speaker 1: return of what probably two point I'm guessing it's way
Speaker 1: less than that. Okay, national average is much much lower,
Speaker 1: but I'm talking about our high interest savings accounts that
Speaker 1: we talk about. Yeah, those were up near those lofty
Speaker 1: rates or semi lofty lofty rates of two and a quarter. Yeah. Yeah,
Speaker 1: but now they've dipped down to the one point seven
Speaker 1: one point eight range, so they're they're even lower. And
Speaker 1: just seeing that stat might make you say, all right,
Speaker 1: I need to be investing more in my money, but
Speaker 1: you can't predict the immediate future, and the exact opposite
Speaker 1: could happen this year. So rate of return is a
Speaker 1: known commodity when we're talking about savings, but it's very
Speaker 1: unknown on a short time horizon. If we choose to
Speaker 1: be an investor, investing can lure should be savers because
Speaker 1: of the promise of greater returns, But that can also
Speaker 1: put us in an uncomfortable position by investing money that
Speaker 1: we need liquid access to. So if we're investing in
Speaker 1: that manner, if we're thinking of it on a short
Speaker 1: time horizon, then it's more like gambling. It's it's less
Speaker 1: making a wise decision for the future, and we're taking
Speaker 1: a bad approach. We're basically gambling on term economic results.
Speaker 1: And Joel, you mentioning last year's rate of return right
Speaker 1: in the stock market, it makes me think of not
Speaker 1: just last year, but the past eleven years. Like I
Speaker 1: think about all of our listeners who maybe have only
Speaker 1: known a bowl market. Maybe they got a job right
Speaker 1: out of college ten years ago, eleven years ago, they
Speaker 1: graduated in No. Nine right like this investing things easy? Yeah,
Speaker 1: this is so easy. You just put your money here
Speaker 1: and it grows like crazy, because that has been what
Speaker 1: we've seen over the past eleven years. But we know
Speaker 1: from history that this is not normal. Like, I'm not
Speaker 1: at all saying that the market is going to crash soon,
Speaker 1: but this upward trend of eleven straight years of growth
Speaker 1: is it's not normal, and it's not something that we
Speaker 1: can count on. It's literally the longest bowl market in
Speaker 1: United history exactly. And so I think if we get
Speaker 1: too comfortable with that, or if that's all that we're
Speaker 1: looking at, we're only looking at the past decade, we're
Speaker 1: gonna think that, well, of course I can throw money
Speaker 1: into the market for the short term, it's only gonna
Speaker 1: go up. But that is not the case. And so
Speaker 1: if you end up investing that money in an attempt
Speaker 1: to maximize your profit, well, if you need that money
Speaker 1: for more near term goals, you might find yourself in
Speaker 1: a tough position when the time comes for you to
Speaker 1: actually withdraw that money. If we've seen a market correction, yeah, man,
Speaker 1: I mean talking rate of return, that's definitely something that
Speaker 1: we have to take into consideration. And you're talking about
Speaker 1: the exuberance essentially that people can have correlated with investing
Speaker 1: in the stock market. The same is true in the
Speaker 1: housing market. And I think sometimes people assume that just
Speaker 1: because things have gone well in housing boom, I should
Speaker 1: get in there, I should invest my money. I need
Speaker 1: to be a part of that. But just know that again,
Speaker 1: prior history, the past five years or ten years of
Speaker 1: performance in the stock market or in the real estate market,
Speaker 1: that doesn't mean you're going to see a similar trajectory
Speaker 1: over the next ten years. You might, but there's a
Speaker 1: good chance you might not too. So yeah, so just
Speaker 1: be careful before you actually invest. Know that the rate
Speaker 1: of return is an important consideration, but your timeline is
Speaker 1: just as important. Yeah, so true, Joel. All Right, well,
Speaker 1: after the break, we're gonna get to some action steps
Speaker 1: things that you can actually do when you are deciding
Speaker 1: whether you should be investing your money or saving your money.
Speaker 1: All right, that we're back. We're talking about saving versus investing.
Speaker 1: Their benefits to both, but their pitfalls to both. And
Speaker 1: so we've talked about the time horizon, liquidity, rate of return,
Speaker 1: but we gotta get into risk. There's risk on both fronts,
Speaker 1: depending on which one you choose. So the reason you
Speaker 1: can make a higher rate of return by investing your
Speaker 1: money in the market or in real estate is because
Speaker 1: of the inherent risks that come along side of that.
Speaker 1: More risk is basically accompanied by higher potential reward. So
Speaker 1: if we're talking about savings, well, there's not really any risk,
Speaker 1: right if we only do business with banks that have
Speaker 1: fd i C insurance and we keep our total assets
Speaker 1: at that bank under the fd i C insured minimum,
Speaker 1: which is two and fifty thousand. So if you've got
Speaker 1: more of that inta pretty big fund. Yeah, if you've
Speaker 1: got more than that in savings, you probably should be
Speaker 1: investing more. But the biggest risk here is opportunity cost
Speaker 1: and seeing our savings getting nibbled down little by little
Speaker 1: by inflation. And that's why we need to be investing
Speaker 1: and not just bulking up that savings account into the
Speaker 1: hundreds of thousands of dollars. Yeah, that's right. And when
Speaker 1: it comes to invest there is a lot of short
Speaker 1: term risk when we're talking about investing your money right
Speaker 1: due to the natural fluctuations of the market. We cover
Speaker 1: this back in episode sixty nine in greater depth. But
Speaker 1: the longer that you're able to sit tight and stay invested,
Speaker 1: the less risk you'll realize Joel, you know, earlier in
Speaker 1: the episode you're talking about once you hit seven years,
Speaker 1: there is a much less chance of you losing money
Speaker 1: in the market, but there is still some chance, right
Speaker 1: you get to ten years, and that risk is even
Speaker 1: smaller once you get to fifteen years. There is no
Speaker 1: fifteen year period of the stock market declining. You're pretty
Speaker 1: much guaranteed to earn money, and not just a little bit,
Speaker 1: but chances are you're gonna earn a lot of money.
Speaker 1: And so the risk that's involved when it comes to
Speaker 1: investing has to do with a short term. There's also
Speaker 1: significant amount of risk if you're considering single stocks. We
Speaker 1: talk about this all the time. But the way to
Speaker 1: combat that is to look too widely diversified low cost
Speaker 1: index funds. There are ways to avoid the inherent risk
Speaker 1: that comes with the stock market, and again we'd recommend
Speaker 1: listening back to episode sixty nine where we really dove
Speaker 1: into you know, what we perceive as risk, but actuality,
Speaker 1: What is the real risk that we're facing? Yeah, man,
Speaker 1: and I think honestly, some of this kind of comes
Speaker 1: down to personality type, and sometimes studies show that it
Speaker 1: comes down to gender. Women are typically a little more
Speaker 1: conservative when it comes to investing, men might be a
Speaker 1: little more exuberant. And both you you were way more
Speaker 1: prone to invest in beanie babies. And I mean, I
Speaker 1: got like five thousands. I'm just waiting for the market
Speaker 1: to bounce back on beanie babies, like I know the
Speaker 1: market is gonna go up. I saw those boxes of
Speaker 1: bay Blades in your trunk to rite exactly. Man, how
Speaker 1: do you know all the children's toys? You know? Well,
Speaker 1: I know about bay blades because when I was a kid,
Speaker 1: I was really into battling tops. Did you ever play
Speaker 1: with us as a kid, I don't think so. I
Speaker 1: played to POGs back in the day at pods. The
Speaker 1: battling tops were virtually exactly like bay blades. Today they're
Speaker 1: just called something different. So it all comes around, man, Okay,
Speaker 1: all right, Yeah, my my nephew played with bay blades
Speaker 1: at least for like. But but basically, yeah, it depending
Speaker 1: on your personality type sometimes your gender, you might have
Speaker 1: different propensities. You might be a little more conservative by nature,
Speaker 1: you might be a little more prone to risk. But
Speaker 1: hopefully the things that we're lining up your time horizon, liquidity,
Speaker 1: rate of return, and risk if you think through those things, well,
Speaker 1: we're gonna have some solid ground to land on when
Speaker 1: we're deciding whether or not to invest our money or
Speaker 1: save our money. And for those of us who are
Speaker 1: a little more prone towards being savers and we get
Speaker 1: scared of investing in the stock market, well hopefully this
Speaker 1: gives us a little bit of a push to actually
Speaker 1: start getting invested. And for those of us who are
Speaker 1: a little risky by nature and we go too hard
Speaker 1: in the investing direction and we don't have any left
Speaker 1: to save for some of those short term goals, well
Speaker 1: maybe we back off what we're dedicating towards our retirement
Speaker 1: accounts and we prioritize saving for some of those short
Speaker 1: term goals a little bit. So yeah, either way you fall,
Speaker 1: whether you have higher tendency towards being an investor or
Speaker 1: a saver, I think these principles, taking these things into
Speaker 1: account can actually help us make a better decision about
Speaker 1: how we're gonna allocate our money. Yeah, and so the
Speaker 1: next question that listeners might be asking themselves is, Okay,
Speaker 1: like I've decided that it's time for me to save
Speaker 1: or I've decided it's time to invest or both. Yeah,
Speaker 1: where do I go right? And so when it comes
Speaker 1: to saving, we would recommend that you check out the
Speaker 1: different online banks who offer those high interest rates. There's
Speaker 1: tons of them out there, but they are our favorite
Speaker 1: spot for putting your savings. The competition is robust, and
Speaker 1: so you know to narrow it down, look for great
Speaker 1: customer service and those competitive interest rates. Joel, you've got
Speaker 1: a great article on the site. They're talking about why
Speaker 1: you opened an account with c I T. They are
Speaker 1: a great option. A lot of folks might be wondering
Speaker 1: why we're not mentioning, you know, the local bank or
Speaker 1: your local credit union, and that's because, first of all,
Speaker 1: they're not offering great interest rates. Secondly, their online banking
Speaker 1: can be a little lacking. Uh. They offer great loan
Speaker 1: products when it comes to the interest rate that they're
Speaker 1: offering when you're looking to borrow money, but when it
Speaker 1: comes to you know, the interest rate that they're paying
Speaker 1: you a lot of times, it's not going to be
Speaker 1: that great. Yeah. I love credit unions for borrowing, not
Speaker 1: awesome for saving, But the worst for saving is the
Speaker 1: big banksy of course, so online banks are a good
Speaker 1: place to start. C I T S great discover Ally Matt.
Speaker 1: I mean, there's so many good ones at this point. Marcus.
Speaker 1: Another person recently left us a message and asked about
Speaker 1: their Marcus account. I mean there there are a lot
Speaker 1: of great places to go online to get a decent
Speaker 1: savings right now. Just yeah, make sure you prioritize customer
Speaker 1: service at the same time. So when we're talking about investing,
Speaker 1: well where should you go? Then well, your work retirement
Speaker 1: account is a good place to start if you have one,
Speaker 1: and especially if you have a company match, and at
Speaker 1: a minimum, you want to prioritize getting that match. If
Speaker 1: you're investing on your own, go to a low cost
Speaker 1: investment house Vanguard, Fidelity, SWAB and in one our favorites,
Speaker 1: open up a WRATH or a traditional IRA and invest
Speaker 1: in low cost funds. And there are other ways to
Speaker 1: invest besides just retirement accounts. Real estate is another thing
Speaker 1: to consider. We've talked about that in the past. But
Speaker 1: just know that investing there are a lot of great
Speaker 1: places for you to land. Don't go on the recommendation
Speaker 1: of maybe someone who's helped you buy insurance before, or
Speaker 1: maybe even just a friend. We would highly suggest the
Speaker 1: low cost companies that we just mentioned and also remember
Speaker 1: as well that you don't have to be saving or investing.
Speaker 1: There can be a happy medium. The rath I RA
Speaker 1: can give us a little bit of flexibility and allow
Speaker 1: us to become investors on a slightly shorter time horizon
Speaker 1: since we will have access to those contributions like we
Speaker 1: discussed earlier. But just keep in mind that in a
Speaker 1: say US account, you can't lose your principle, right, like
Speaker 1: you can't lose your contributions, but you can when invested
Speaker 1: in a WRATH. Right. There's all these trade offs that
Speaker 1: you need to consider that we've talked about through this episode.
Speaker 1: But just make sure you keep that in mind. And
Speaker 1: a lot of folks might be wondering about c d
Speaker 1: s Certificates of deposit, and in that case, we would
Speaker 1: recommend to not even really consider CDs because the rates
Speaker 1: that are being offered right now, man, they're not much higher,
Speaker 1: if at all higher than the high interest savings rates
Speaker 1: that are being offered by the online banks. So you
Speaker 1: can kind of skip those all together and not have
Speaker 1: your money tied up for a year, three years, five years,
Speaker 1: whatever it is. I think CDs used to be a
Speaker 1: little more beneficial. They just seem like they're kind of
Speaker 1: dying on the off the wayside. Yeah. Yeah, And because
Speaker 1: the online saving US accounts have become so good and
Speaker 1: they're paying such high rates. So now that we know
Speaker 1: all the risks associated with saving versus investing, we know
Speaker 1: where to go. Well, what do we do now? It
Speaker 1: depends on what our individual goals are. If you don't
Speaker 1: yet have an emergency fund, well, you need to have
Speaker 1: an emergency funds saved of at least two thousand, four
Speaker 1: hundred and sixty seven dollars to six seven. I love
Speaker 1: that number. I know. I love that specific number two
Speaker 1: that we can give people to shoot for, and I
Speaker 1: think it's helped a lot of people matter as we've
Speaker 1: put that out there, they're like, Okay, it gives me
Speaker 1: just a specific amount that I need to hit. Yeah,
Speaker 1: It's it's so concrete, and I think that's that's the
Speaker 1: beauty of it, right versus saying, oh, you need to
Speaker 1: have three to six months worth of living expenses. It's like, okay,
Speaker 1: well do I consider like my living expenses now or
Speaker 1: what I could survive on? Should it be three? Should
Speaker 1: it be six? Like where do I land? Yeah? And
Speaker 1: then that's still I think a good goal to have,
Speaker 1: but this is at least the minimum goal, like, Okay,
Speaker 1: this will keep me solvent no matter what happens. Typically, right,
Speaker 1: that should be our top priority before we go about
Speaker 1: opening an investment account and starting to fund it, even
Speaker 1: before we save for other short term goals. Having this
Speaker 1: emergency fund is going to do wonders for our peace
Speaker 1: of mind and helping us feel in control of our money.
Speaker 1: And of course you want that money to be highly
Speaker 1: liquid and accessible, so those funds should be in your
Speaker 1: high interest savantis account one of the ones that we
Speaker 1: just mentioned, and in an ideal world, you can prioritize
Speaker 1: both saving and investing. Right, that emergency fund of two
Speaker 1: four six seven that is a great start, but you
Speaker 1: will need more liquid cash to help you with your
Speaker 1: future goals. Right, how you slice up the percentage that
Speaker 1: you put towards savings and investing. That's gonna differ based
Speaker 1: on your individual goals. Right, say you don't want to
Speaker 1: buy a home and you want to retire at age fifty,
Speaker 1: Well you likely funnel way more into your investments. But
Speaker 1: maybe you want to buy a home in two years, Well,
Speaker 1: you will want to beef up your savings for the
Speaker 1: time being. Ultimately, prioritizing both provides stability and it provides
Speaker 1: you options to be able to change your mind down
Speaker 1: the road, because goals that you have now may not
Speaker 1: be the same goal that you have in five or
Speaker 1: in ten years. And I think a lot of times
Speaker 1: too for folctional they get overwhelmed that, you know, they
Speaker 1: see the different accounts Like Vanguard, actually they've got pretty
Speaker 1: high bar set as far as the minimum amount that
Speaker 1: you need to get investing. Well, a lot of folks,
Speaker 1: like with Fidelity, they don't have minimums when it comes
Speaker 1: to getting started investing, especially in their different retirement accounts.
Speaker 1: And so if you're able to even just set aside
Speaker 1: twenty dollars a month, that can just be a fantastic
Speaker 1: way to get that ball rolling to where it doesn't
Speaker 1: feel like this massive, audacious, intimidating thing. It can be
Speaker 1: something that they just start plugging away at. I think
Speaker 1: a lot of people hesitate to start investing because they're like,
Speaker 1: I don't have thousands of bucks to get into the
Speaker 1: investing game. I'm not an investor right exactly. It feels
Speaker 1: like this hot, lofty thing that you you can't achieve.
Speaker 1: I have to just be a saber right now. But
Speaker 1: you can be both, and you can start investing literally
Speaker 1: ten twenty bucks a month. I mean, just getting started
Speaker 1: is half the battle. Uh, And it makes you at
Speaker 1: least feel like, you know what, I'm an investor now,
Speaker 1: I can do this. Yeah. And a company like Fidelity
Speaker 1: who has zero minimums swab the same. You can get
Speaker 1: started and at least get on your path to investing
Speaker 1: for the long haul. And I think to Matt, it's
Speaker 1: important to note that you'll likely have to change your
Speaker 1: allocations over time as your goals change. Right, some years
Speaker 1: you might be more of a saver, some years you
Speaker 1: might be more of an investor. It really depends on
Speaker 1: kind of how those short and long term goals shape up.
Speaker 1: And as you get older and you begin to prioritize
Speaker 1: different things, those goals are gonna shift, and where you
Speaker 1: allocate your money is gonna shift too. That's right, man,
Speaker 1: I'm not who I was yesterday, very different. Who knows
Speaker 1: what's gonna happen in five years? Right? All right? Man,
Speaker 1: let's take it back to the beer. This episode, we
Speaker 1: had cong which is a double hazy I p a
Speaker 1: by Barrel House brewing company, and they're out in California, Joel,
Speaker 1: what did you think about this beer? Man? Though, I
Speaker 1: was great, I like hazy double, I p a s.
Speaker 1: I feel like uh, Donkey Kong was throwing barrels in
Speaker 1: my mouth like a pops barrels of hoops, exploding, barrels
Speaker 1: of flavor. Yeah, so I man, I thought it was
Speaker 1: really good. I mean really, It's one of my go
Speaker 1: two styles and I really enjoyed this one. Yeah. Again,
Speaker 1: a big things to our friend Josh for donating this beer. Joel.
Speaker 1: I noticed on the labels well where it says instead
Speaker 1: of saying high score, it says hop score. And it's
Speaker 1: got ten I v U S, which is a nerdy
Speaker 1: beer thing about like international bitterness units. So tin it's
Speaker 1: not super high, which means this beer drink pretty sweet
Speaker 1: and mellow. It kind of drink like orange juice, which
Speaker 1: we've described many a beer tasting like that before, which
Speaker 1: means that we really enjoyed this one. We'd recommend for
Speaker 1: you to check out that brewery if you're ever out
Speaker 1: there near Barrel House, But Joel, I think that's gonna
Speaker 1: be it for this episode, our listeners. You can find
Speaker 1: more helpful information up on our site. At how It's
Speaker 1: Money dot Com. Yeah, man, and I noticed we've had
Speaker 1: a bunch of new listeners come on since we hit,
Speaker 1: which is great. We love inviting new listeners into the show.
Speaker 1: Don't forget to give our Facebook group a shot. Just
Speaker 1: search how to Money in the Facebook search bar and
Speaker 1: you'll stumble upon our group. It's really helpful. A lot
Speaker 1: of great people in there, a lot of robust conversation. Yeah,
Speaker 1: over five thousand members now, which is really really cool
Speaker 1: to see. And also, if you're new, go back and
Speaker 1: listen to some of the prior episodes, Matt, We've covered
Speaker 1: so much information through a hundred and sixty three episodes
Speaker 1: at this point. I can't believe it's been this many.
Speaker 1: But yeah, if you're a new listener, to go back
Speaker 1: and check out some of those older shows. There's some
Speaker 1: really good stuff in there for you. Yeah. But you know,
Speaker 1: we've covered a lot of topics and we're going to
Speaker 1: continue to So that's gonna be it for this episode. Well,
Speaker 1: until next time, Best Friends Out, Best Friends Out.