Pod Insights The Personal Finance Podcast How to Build Your Investment Portfolio (The Portfolio Pyramid!) About this episode Most new investors start building their portfolio completely backwards. Here is the exact framework to build it the right way from the very first dollar.
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What You'll Learn in This Episode
The complete Portfolio Pyramid framework and exactly how much of your money belongs in each of the three tiers
Why the foundation should make up 80% of your portfolio and what happens to your wealth when you skip it
The specific index funds and ETFs that belong in your foundation and why they outperform most professional money managers
What the growth layer is, what goes in it, and the individual stocks Andrew is personally buying right now
When you have actually earned the right to add speculative assets to your portfolio and how much is too much
The biggest mistakes investors make at every tier and how to avoid all of them
Four advanced Q&As covering a guaranteed $99K teacher's pension, lowering taxes on a $1M 401k rollover, Medicare costs in retirement, and protecting your portfolio as you age
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Question for you:
Where are you right now in the Portfolio Pyramid? Are you still building your foundation, starting to add growth layer investments, or have you moved into speculation territory?
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Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Andrew Giancola? When I started the Personal Finance Podcast, I had no idea how big it could become. I just knew I had something I wanted to share, so I started putting it online. And looking back, I definitely wish I would have started a decade earlier. One of the horror parts about building something online, though, is making it look professional. A website used to mean hiring a developer, figuring out design, and potentially spending thousands of dollars. In fact, on my website, I spent tens of thousands of dollars. That's what impressed me when playing around with Hostinger's AI Website Builder. I told it what kind of website I wanted, and I built the first version in minutes. No coding, no designer, or developer needed. And Hostinger doesn't stop at launch.
0:44 Andrew Giancola? Their AI can help with SEO, website copy, email marketing, and more. Plus, your domain, website, email, and marketing can all live in one account, with plans starting at just $3 every single month. Hostinger builds your vision step by step. Create your website today. Go to hostinger.com/pfp and use code PFP for 10% off now. Now, if you watch this podcast on Spotify, Apple Podcasts, or YouTube, you've probably noticed the wood slat walls behind us. We wanted this podcast set to look professional, but also not be a project that was overly complicated. And I found these slat walls on Wayfair, and it completely changed this space. And it's now basically the background that you see in every single podcast
1:29 Andrew Giancola? or piece of content that we record. And that's one of the things that I love about Wayfair. You can shop thousands of products across different styles and budgets, use customer photos and reviews to see how things actually look in real homes, and find something that fits your space. They also have Wayfair Verified Products that are hand-vetted by product specialists using a 10-point quality inspection. And with more than 20 million verified 5-star reviews, you can feel a lot more confident about what you're ordering. I've used Wayfair for this studio and our home, and I absolutely recommend them for your space. So transform your space with pieces that hold up to real life. Join Wayfair Rewards today and get 5% back on every single purchase.
2:14 Andrew Giancola? Head to wayfair.com or shop the Wayfair app for all things home. That's W-A-Y-F-A-I-R.com. Wayfair: Every Style, Every Home.
2:28 Andrew Giancola? On this episode of the personal finance podcast, how to build your portfolio with the portfolio pyramid.
2:43 Andrew Giancola? What's up everybody and welcome to the personal finance podcast. I'm your host, Andrew, founder of mastermoney.co. And today on the personal finance podcast, we're going to be diving into how to build your portfolio with the portfolio pyramid. If you guys have any questions, make sure you join the master money newsletter by going to mastermoney.co/newsletter and don't forget to follow us on Apple podcasts, Spotify, YouTube, or whatever podcast player you love listening to this podcast on. And if you want to help out the show, leave a five star rating and review on Apple podcasts, Spotify, or your favorite podcast player. Can I thank you guys enough for leaving those five star ratings and reviews?
3:26 Andrew Giancola? It really does help us grow this show and spread this message. So today we're going to be diving into the portfolio pyramid. Now, the portfolio pyramid is our framework showing you exactly how to build a portfolio based on where you are with your finances. And this is intended to help a lot of you out there. Stop making the dumb mistakes that most new investors make. Most new investors will come in very confident, whether or not you made a lot of money in your career and you think that will translate over to being a good investor. Or if you are someone out there who is just a new investor, taking information from Tik Tok, Instagram, or YouTube, and you feel as though you are ready to go when it comes
4:08 Andrew Giancola? to investing, you need to learn to build your portfolio in the right order. So at the beginning here, what I'm going to be talking through is a framework to consider building your portfolio and a framework to consider following and doing your own research when it comes to investing is one of the most important things that you can do. If you are a new investor and you plan on managing your investments, I highly encourage you to spend some time educating yourself, reading some books upfront are going to be really important, then starting to build. Out your investment plan. Your investment plan is one of the most important things that you can do as an early investor. Because you're going to list out why you are doing what you're doing. You're going to figure out what the end goal is, what your retirement number is.
4:50 Andrew Giancola? But in addition, you're also gonna be able to have something in place that when the market goes down, or when there's a shift in the market, you go back to this investment plan and you can tell yourself, okay, I know exactly why I'm doing this right now. And this is going to be the reason that helps me move forward and not get emotional when the market drops. Not shift my perspective when the market drops. Instead, you want to make sure that you stay invested. And here's what I want most of you to do is understand that the market at some point in time is going to go down. And when the market goes down, you have to be resilient. You have to stick to your plan. And I want you to do that over and over and over again. So let's dive deeper into the portfolio pyramid. Then we're going to talk about common mistakes with each phase within that pyramid.
5:34 Andrew Giancola? And then we're going to dive deeper into Q and As later on in this episode. So if that's something you're into, let's get into it.
5:43 Andrew Giancola? All right, so let's talk about phase one of the portfolio pyramid. This is your foundation and you need to build your foundation first. For those of you out there who are still working on your first 100K, maybe you're working towards your first 200K invested and you haven't gotten to that point in time yet. You need to only be focusing on your foundation. The foundation of your portfolio is what is going to allow you to achieve financial freedom, no matter what the market does, because we are trying to make something that will be resilient throughout time. And long-term investors know that if you stay invested over the long term and have your foundation in the right place, you will be able to be resilient when the market takes dips.
6:26 Andrew Giancola? Now let me give you an example of this because I want to make sure that this hits home. When we are building out this foundation, we want to focus on very specific investments. And you want to do your own research on which stocks, index funds, ETFs, those types of things you are buying. And so when we do this, I think most people need to focus on three core areas. One is index funds. So index funds should be the core. Of your portfolio because over the long run, most of us know that broad-based index funds are going to outperform most professional money managers. Professional money managers that are on Wall Street, sitting there with a team of Harvard and Yale graduates cannot outperform the S and P 500. So why do we think as individual investors,
7:09 Andrew Giancola? we should have less than the majority of our portfolio in something else? In my personal opinion, I don't think that you should, but you can do your own research when you are thinking through this. So what I want you to do is I want you to build out your foundation and create the plan for your foundation. So for me specifically, this is broad-based index funds and ETF. So thinking of things like VOO. So VOO is the ETF at Vanguard for the S and P 500. So this is a big, large core ETF that has the 500. Actually, it's a little more than 500 companies within the S and P 500, the 500 largest companies in the US stock market. Well, this is going to be a great core holding for a foundational investor, someone who is still on their foundation.
7:54 Andrew Giancola? Maybe something like VTI, for example. This is the Vanguard Total Stock Market ETF and VTSAX is the index fund of VTI. This is a great holding as well. Maybe it's something like QQQM where it's the NASDAQ 100, where you're holding the 100 largest companies within the US stock market. Maybe you feel as though, well, my risk tolerance says to me, well, I'd rather have a little bit of bonds in there in that portfolio as well. And so you hold bonds in your portfolio during this timeframe. And so this is something where you were thinking through, what are the broad-based funds that I should be holding as the foundation of my portfolio? And so this needs to be for most people out there. As you start to progress through this portfolio, this needs to be 80% of your portfolio, in my opinion.
8:38 Andrew Giancola? 80, 85% is where you should land with the basics, the index funds, the ETFs, or the third option, which is a target date fund. So I like target date index funds or target date ETFs because they allow you to have a specific time horizon that you are targeting and you can invest your dollars in that time horizon. It's going to adjust your Asset allocation based on when you retire. Now, what I don't like about these is when they have those ranges or the timeframe of when you are going to retire. A lot of people will choose the year they're going to retire, but it doesn't fit their asset allocation. So you want to make sure that if you're looking at target date index funds or target date ETFs, that you are choosing a time horizon that fits your risk tolerance.
9:19 Andrew Giancola? So most of you may have logged into your 401k before, or maybe you logged into your IRA and you saw funds in there that maybe said the Vanguard Target Date Retirement Fund 2045, for example. Well, if you are someone who wants to have the majority of your portfolio in bonds and you just wanted to get into target date retirement funds as you got started investing, or it's the only thing that your 401k offers. Well, you want to make sure that it fits your risk tolerance and the mix of stocks and bonds in that target date retirement fund reflect that. So just because you're planning on retiring in 2045, doesn't mean you want to select the 2045 fund. Maybe you want a more aggressive allocation and so you select the 2060 or 2065 fund because it has the majority of that portfolio in stocks.
10:01 Andrew Giancola? This is why target date retirement funds aren't optimal for most people, but they're fantastic to get the ball rolling and to get started. So you actually get your dollars invested. And so when it comes to these three areas, building out that foundation, I think a lot of people need to think about this. Then you want to make sure that you're building or adding in other index funds and ETFs that may fit your core portfolio. Maybe you want some international exposure. As of late, as the time of recording this, a lot of folks are running towards international index funds because the economic certainty of the US is rocky in their mind. I am still, and this for some reason is controversial now, I am still extremely bullish on the US economy and the US going forward. All the biggest companies are in the US, all the biggest AI companies are based in the US.
10:46 Andrew Giancola? And if you think international is going to outperform the US stock market, I think you are off your rocker. You need to understand that the US economy still has the biggest, largest companies that run the entire world. And so for most people, if you want to add international exposure, I don't blame you. More power to you and you can do that in this foundational portfolio here at the very beginning. This is a great time to look at that. Maybe you are someone who wants to add in some additional index funds and ETFs in other sectors. Well, we're going to talk about when to do that next, but I don't think it should be in your foundation. I don't think it should be in the core part of your portfolio where we have this 80%. Now, for those of you under $200,000 invested, and especially if you're under $100,000 invested,
11:31 Andrew Giancola? you should not be focusing on anything else outside of the core foundation. It should be 100% of your portfolio, should be all the things within the core foundation. Everything outside of the foundation should come later on as you started to build a little bit more wealth. But when you are just getting the ball rolling, it is absolutely ridiculous to think that you should be investing in commodities or Bitcoin or these other things that are coming up that we'll be talking about here. It should only be the foundation until you earn the right to then move up the next level. Now, it sounds like, oh, earning the right is one of those terms that I think most people need to understand that you gotta put your time in, just like anywhere else. You gotta put your time in with investing, buying the boring stuff. Hey, I know it's boring. I know it's not fun to talk about this stuff,
12:13 Andrew Giancola? but I think later on down the line is when you should be adding additional things to your portfolio.
12:20 Andrew Giancola? Now, phase two, phase two is going to be really important because we are talking about the growth layer. This is the growth allocation. These are the things that you can add in. Now, let me just make this caveat upfront as we go through this. You need to note that your entire portfolio could be the foundation. I have a lot of retirement accounts where my entire portfolio is only the foundation. They are literally index funds, ETFs, that's all I have, and it's the basic boring stuff. We just had J.L. Collins on the show recently. His entire portfolio is only the foundation. He has VTSAX, his entire accumulation lifecycle was VTSAX. Nothing wrong with that whatsoever. You could stop here and your allocation could be 100% of the foundation. Why? Because the foundation is safe.
13:04 Andrew Giancola? The foundation is proven to outperform most professional money managers, which means you're going to be making more money with the foundation. And in addition, it is the passive way to invest. You don't have to think about your investments anymore. You can auto invest into the foundation. Foundation and not have to worry. And I think for most people out there, you need to understand that the foundation can be your entire portfolio. And for a lot of smart investors, it is. Now, part two is let's talk about the growth layer, because the growth layer is going to be a layer that adds a little more flair and a little bit more fun to your portfolio. I right now, for example, am buying a lot of different things that are adding into the growth layer. So let's talk about what that is. This is where you can take slightly more targeted risk
13:48 Andrew Giancola? when you're trying to get some higher returns. Now, are you going to outperform the S and P 500? The statistics say most likely you're not. But if you like the game, if you like buying individual stocks, if you like looking at additional funds or you like dividend stocks or you like some of these other sectors, then you can absolutely look at this growth layer as something where you add in some different holdings into your portfolio. And we'll be talking about the growth layer a little bit more because I am actively doing it. I will be talking about some of these different options a lot more on this show as we get going here. So these can be things like sector funds. So let's say, for example, you want to buy index funds in ETFs in different sectors. You could look at the tech sector, for example. If you are very bullish on AI as I am,
14:31 Andrew Giancola? then you could look at tech sector ETFs that maybe you want to buy more of. Or maybe you want to invest more in healthcare because you are interested in buying more healthcare sector funds because you know healthcare long term is most likely going up because we have a healthcare problem in this country. And most of these healthcare companies are very profitable. Maybe, and this is a very common one for a lot of folks who ask questions to this show, is you want to invest in REITs or real estate investment trusts. And you want a passive way to get real estate exposure. And so your interest is to do that. Or maybe you're looking at additional sectors or funds. Maybe you want to invest in utilities or whatever else. There's so many different styles of funds that are out there. This is the time to do it. But in addition, if you also want to add in emerging markets or you want to add in small caps or you want to add in some of those that aren't included
15:15 Andrew Giancola? in the broad based index funds in the foundation, this is another great place to do that. And a lot of folks out there are interested in dividend stocks. So dividend growth funds are something I think are a very powerful wealth building tool, especially as you get Them growing over time, and this is another thing where time will compound these dividend growth stocks to a massive amount, especially when you are doing dividend reinvestment. And so because of this, you can start to add these funds into your portfolio as well. And it can be a big core strategy for a lot of folks. I know a lot of people who have retired with dividend stocks because they produce enough cash flow to fund their lifestyle. And so this is a great time to look into this. And if you're looking or interested in international
15:57 Andrew Giancola? or emerging markets, some of those markets are where a lot of folks are taking some of their dollars when they are uncertain about the economy. This could be another great spot to do that as well. I specifically am investing a lot more in sector ETFs and/or a lot more in individual stocks in this area. For example, I just bought a number of different stocks recently, including Amazon, was one that I thought was pretty undervalued. I invested in SoFi was another one I thought was pretty undervalued. I've been investing even more into individually into Nvidia because I think Nvidia is just going to be a company that continues to grow over time. I've been investing in Meta and some other individual stocks as well. Now, this is because I see some of these as undervalued investments. I see some of these, I'm about to actually buy some Microsoft in the next couple
16:42 Andrew Giancola? of weeks. And at the time recording this, I'm recording this in early April, and this is a timeframe where I see some undervalued stocks across the board. And so when I see that, I am going to buy some of these individual stocks. Now, none of this is something that I think you should do, but I do think if you understand how the market works and you understand what you are doing, then you can definitely add in some individual stocks to your portfolio. A, I just like having them. I like researching them. I like diving deeper into these companies. I like understanding why they are moving in the direction they move. And if you are not interested in that stuff, if you are not interested in diving deeper and doing the work to make sure that you understand why you are buying what you're buying, then it's not worth it for you. It's not worth it for you to dabble in this arena if you don't need to. Same thing goes for people who are invested
17:25 Andrew Giancola? in dividend growth stocks. For example, if you are looking at dividend growth stocks, there's a lot of utility companies. There's a lot of old fashioned railroad companies. There's these dividend aristocrats that you can buy, companies like Johnson and Johnson, companies like Clorox. Procter and Gamble and these are companies that you got to dive deeper and understand how the dividend growth has been over time and what is going to happen going forward. If you're looking at REITs, you want to understand what those REITs are investing in. What are some of the communities they are investing in? What is the overview of what their strategy is going forward? Do they have anchor tenants if they're commercial? Are they looking at residential housing? How are they thinking about this and building out their portfolio? All of this is imperative and you must know this stuff before you invest in some of these different companies.
18:06 Andrew Giancola? And so when you're thinking about this, this adds a layer of potential that you could have upfront, but in addition, most likely for most investors, they are not going to outperform the S and P, which is why you want to keep this as a smaller percentage. So the growth layer, in my opinion, and in this portfolio pyramid is going to be anywhere from 15 to 20%, depending on what you do with some of the next steps. So you can have 15 to 20% or you can have 0% and have 100% of it be the foundation. I'm going to keep reiterating that with the foundation because I want you to note as you start to build this out. Now this just adds that extra layer and this is the way I want you to think about it. Now let's get into the third layer in the portfolio pyramid next.
18:47 Andrew Giancola? The third tier is going to be the speculation tier. Now this should be 10% or less of your portfolio. For some of you out there, it should be less than 5% of your portfolio. You should not enter into this area until you have a good chunk of money invested, meaning hundreds of thousands of dollars invested before you get into this area. And I think it should really, in reality, if I'm being honest with you, it needs to be over $250,000 before you start doing some of this stuff, especially when it comes to your net worth and making sure that you're in the right spot. Where this is some of the higher risk stuff that you could be looking at. Also, these are going to be the assets that don't have intrinsic value. Now, what is intrinsic value? Well, intrinsic value in the simplest form that I can put this is what types of investments have things like cash flow backing them, have things like P and Ls backing them, have
19:32 Andrew Giancola? real core numbers that back up what they actually do. Things that don't have intrinsic value are assets that are only worth what someone else is willing to pay for them. So let me give an example of this. If I went out and I bought Amazon stock today, I would be able to see what the revenue is. With Amazon stock, I'd be able to see what the profit is with Amazon stock. I'd be able to see how many units they're moving. I'd be able to see what their profitability is on AWS versus on the app versus on, you know, other different channels and what they are doing with AI and how much they're spending in some of those different areas. All of these data with a lot more than that, I could join earning calls and hear more about that information. If I wanted to go out and buy gold right now, how would I back or figure out exactly what gold is worth?
20:15 Andrew Giancola? Well, gold is only worth what someone else is willing to pay for it. That is why two years ago, gold was worth, you know, a little over a thousand dollars. And now at the time of recording this, it's worth a little over $3,000. The reason for that is because it's only worth what someone else is willing to pay for it. And it's an asset that people will flood to when there is uncertainty. So this is what I want you to note. When it comes to speculative assets, they don't have balance sheets backing them. They don't have intrinsic value backing them, but what they do have is some value and some utility, depending on what your asset allocation or what your overall investment plan is. So what falls under this tier of speculative assets? Well, first is crypto, specifically when it comes to Bitcoin.
20:57 Andrew Giancola? I think Bitcoin is the only crypto that is worth investing in currently, but that is just my opinion. If you have some other crypto that you're interested in, maybe you're interested in Ethereum. I have bought Ethereum in the past and I'm just holding it now. Maybe you are interested in Solana or maybe you're interested in whatever you're interested in. You can buy whatever crypto you think would work out based on your situation, but I think Bitcoin is the only one worth holding overall institutionalized at least. And there are some investors that have some dollars in crypto. In addition, there's alternative assets. So there is different assets you can look at buying that are going to help you, you know, invest your dollars. I know people that are really into Pokemon cards. I know people who are into like my son is very interested in sports cards.
21:37 Andrew Giancola? And so what we did was we figured out a way to get profitable sports cards by buying them as individual raw cards and then grading them, sending them off to PSA or CGC or some of those other places and then increasing the value on those cards. The first batch that we did, we made a profit of $2,000. And so my son and I have started. Started this little business that's really fun together. We utilize AI and we have AI actually figuring out which cards would be the most optimal and have the highest rate of return when it, when they are sent out to PSA in some of these areas. Having the highest gem rate, which is a term they use in the sports card and the Pokemon and all those different other industries. So he's interested in that. So I said, hey, why don't we dive deeper into this? That's the way I am when it comes to stuff that they're interested in. Let's start a business and see what happens.
22:22 Andrew Giancola? He and I are working through that and I think it's a really cool and fun way to do this. Maybe there are some other, you know, high risk sector bets that you're interested in. Maybe you know of some things that you want to invest more dollars in. Uh, maybe it's commodities. So maybe you're looking at gold. Maybe you're looking at silver, which has had a great return. Maybe you want coins and you like the difference between certain coins and you understand that market. And you have a lot of expertise in that market. I don't have a problem with any of this, but you got to have some net worth and you got to have a financial foundation first. You can make a lot of money in Pokemon cards. You can make a lot of money in sports cards. You can make a lot of money with gold and silver and platinum. You can make a lot of money with copper right now. Copper is very interesting to me because of the amount that is needed in data centers. Now, this is something that I think for a lot of folks out there, when you're looking at commodities
23:07 Andrew Giancola? or you're looking at what you understand, maybe you're interested in Forex long-term. I don't like day trading Forex, but I think long-term it's very interesting. There's a lot of things that you could do and a lot of assets that you could add into the speculation tier. But I call it the speculation tier for a very specific reason. That's exactly what it is. It is not something that is backed by intrinsic value. It is something that you know is higher risk, could have higher reward. But in reality, there's also the possibility that you lose money on that asset. And so you want to make sure that over time, and obviously with any of these, there's a possibility of losing money in these assets. If anybody tells you otherwise, you need to write them off. But when it comes to speculation, the higher risk speculation is going to be something that you want to think through. For example, I know people who buy land deeds on properties.
23:50 Andrew Giancola? It's people who are way behind on taxes and whether or not they actually are going to get the land from that deed is not actually guaranteed, by the way, in the structure that they do it. And so when they do these types of things, there's a lot of risk there, a lot of risk involved. They could lose all of their money, but at the same time, they could have a very high return. And so I think that needs to be a small percentage of your portfolio, but you also need to get to a certain amount of assets before you can even consider doing this. Then, once you do consider doing it, it should not be more than that 5 to 10%. And so this is the speculation tier and why we are thinking about this as we go forward.
24:26 Andrew Giancola? So those are the three tiers in the portfolio pyramid. That is how the portfolio pyramid works. But what do you need to do next? Well, first, you need to assess your risk tolerance before you start to allocate your dollars. For some of you out there, your risk tolerance isn't high enough to even go into tier two or tier three. So you must make sure that first you have the risk tolerance or the tolerance available. If the market goes down, you need to be able to stay in there or you need to be willing to buy in the second two tiers. If you're not, then you probably are just well made up for the foundation. And building a foundation is an incredible way to build wealth. You can become a multimillionaire with the financial foundation. So you want to make sure that you have that foundation first. And so you may be saying to yourself, well, how do I figure out what my risk tolerance is? We're going to do an entire episode on that.
25:11 Andrew Giancola? So make sure you're following this podcast, but I'll give you a couple of questions here to ask yourself when you get started. First, what is your investment time horizon? How long do you plan on holding these investments? Is it five years, 10 years, 20 years, 30 years? In my opinion, you should not even consider an investment unless you're willing to hold it for 10 years or longer. And so if you're not willing to hold it for 10 years or longer, then you most likely are making a short-term financial decision. Wouldn't go with that whatsoever. Two, how do you react? Or how would you react if the market had a 20, 30 or 40% drop? For some of you, you think to yourself, oh, my goodness, this is amazing. I'm going to buy more because whether it's socks or stocks, I like things on sale. And so when the market drops, you see that as stocks on sale and you want to buy more.
25:55 Andrew Giancola? Maybe you're someone out there who says, oh, my goodness, I'm going to pull my hair out. I'm going to panic and I'm going to be checking my investment app every single second when the market drops. Let me give you an example of this. Our DMs, every single time there has been a pullback over the course of the last six years, our DMs or our email box has flooded with people saying, what should I do? The market is dropping. What should I do with my money? Should I pull it out? What should I be doing? If you do that, if you are the type of person who panics when the market goes down, I want you to then make sure that you stay in the foundation as the all of your portfolio until you become better when it comes to your risk tolerance. Next, do you have a fully funded emergency fund? Do you have that six-month emergency fund?
26:38 Andrew Giancola? That's going to help you with your risk tolerance and be a little more comfortable. And are you carrying high interest debt? That is another one that needs to be paid off over time. And the closer you are to retirement, the more you need to lean towards this foundation tier because it's really, really important.
26:54 Andrew Giancola? Now, step five, the next thing you need to do is understand the right accounts for each of these tiers. So when it comes to the foundation, doing your retirement accounts with that foundation is really, really important. Your retirement accounts should be filled up with foundational assets. It should be filled up with assets that are going to help give you that foundation for your retirement. Index funds, ETFs, target date retirement funds, those investments that have been proven historically over time to be great assets for those who are retirees. When it comes to some of the growth stuff, you can look at a Roth IRA or a taxable brokerage account for the growth stuff. Why? Because Roth IRAs have tax-free growth. And so if you are looking at dividend stocks, or you're looking at stuff that you think could grow faster, that is an option. For me, I still like index funds and ETFs in my Roth IRA. My basic rule
27:39 Andrew Giancola? is I keep the foundational stuff in my retirement accounts, and then when I add some extra things, then I'll put it in a taxable brokerage account. Then I play with the money that way. So that's the way I have it in my foundation is having the speculation, that's going to be a taxable brokerage account. Maybe you open a crypto account, something like a Coinbase account, or whatever else you like to use. Maybe you open up a trading account if you're interested in looking at gold or silver or some of these other things. Or maybe you go in and actually buy the physical asset, like I was talking about with sports cards. You can go buy physical gold. You can buy silver coins. You can buy all these different things that would help you overall when it comes to this. So, an interesting way also to buy gold, by the way, is a lot of people don't think about it this way. You can buy gold jewelry, for example, then sell it when the price goes up, which is wearable. If you're interested in, you know,
28:22 Andrew Giancola? having something like that, obviously the opportunity cost of losing that could happen. But at the same time, that is another interesting way to think about that. Now, step six is once you start to set up some of this tier, you want to automate the process, meaning automatically contributing to your investments every single month, and you should be automatically contributing to your foundation with the majority of your money. And then as time goes on, then you can start to shift and add automations toward the growth layer, and then the speculative layer as well. Those are going to be the areas that you can look.
28:51 Andrew Giancola? And then I want you to adjust this pyramid as life changes. So how do we adjust the pyramid as life changes? We're going to think about this in two different phases. And I'm going to think about three different investors. Okay. So for most people out there, when you are investing your money, you need to focus on the two core foundational ways to invest your dollars. One is to invest for growth, meaning you are trying to grow your money and you are in the growth phase when it comes to building wealth. Most people who are working a nine to five or who are working, building a business, they are in the growth phase. They are trying to build a foundational portfolio so that when they become financially independent, they can then move on to the next phase, which is preservation. So you have the growth phase and you have that preservation phase. And when you are growing and accumulating, that's where you want to be more aggressive.
29:36 Andrew Giancola? And so you want to have more stocks in your portfolio, most likely, unless your risk tolerance is really rough. Then you want to make sure that you have more stocks in your portfolio. As you get closer to the accumulation phase, you're going to add in more bonds. So for example, we just did this with my parents. I talked about this in the Master Money Newsletter. If you are not subscribed, make sure you check the links down below in the show notes and subscribe to the Master Money Newsletter. We give you a five minute tip every single week to help you with your money. It is going to be high value for you, I promise. But when we go through this, we just talked about this. I set my parents up with a 70 30 portfolio. They're in their late 60s. And so we set up a portfolio for them based on their risk tolerance of 70% of stocks and 30% of bonds. And so we set this portfolio up. They were comfortable with it. They fit their asset allocation.
30:19 Andrew Giancola? Maybe for you, when you get to the preservation phase, you want to be 50 50. You want to be 50% stocks, 50% bonds. Maybe you want to be 40 60 because you have a really, really low risk tolerance. If that's the case, no problem, but your portfolio just isn't going to grow as much. But when you hit the preservation phase, you do want to add in either bonds, cash, or some people stay invested in all stocks. Nothing wrong with that whatsoever. And especially if your portfolio is large enough, you can absolutely do that. So those are some things that I just want you to think through as we go through this step by step. Now, As life changes, if you're a young investor pushing speculation slightly higher up to 10% and reducing bonds in the foundation could be something that you're interested in doing. Getting close to that 10% number is going to be much, much more enticing for you, but
31:03 Andrew Giancola? you gotta have the core foundation of your first 100 to 200K before you can even get to that realm. Secondly, as investors with 10 years left in retirement, you may want to start adding a little more bonds in your portfolio and reducing the overall speculation that you hold. That may be a move that you want to make. And then if there's major life events, if you have marriage or kids or a job change, those are good trigger points to revisit your asset allocation because some of my young investors out there who then get married and have kids, you want to make sure that you're looking back at your asset allocation. You don't have your whole allocation in crypto or whatever else. You want to make sure that you are building a foundation for your family that can be a wealth building foundation. That's the big core of this that I want most people to think about when they are building out their asset allocation. Perfect.
31:48 Andrew Giancola? Now, I'm going to talk through some of the common mistakes of each and every single phase, but for anybody out there who is interested, we are going to do a live masterclass with me on the call that will walk you through step by step the portfolio pyramid. We're going to go through the portfolio pyramid. I'm going to put a link down below. It is completely free. If you want to join that, it'll be live with me after you can ask me questions about the portfolio pyramid and about building out portfolios if you have them, but we're going to put a link down below in the show notes for you so that you can check that out. First, let's talk about mistakes on the foundation tier. The foundation tier again should be 80, 85% of your portfolio, and this should be where we are thinking through, you know, making sure we have a foundation. Now, the number one mistake that I see people make is they start at the top instead of the bottom.
32:33 Andrew Giancola? A lot of people will start by investing in gold or investing in cards or investing in Bitcoin. And this is very common for young investors. They start with the wrong thing, and I am guilty of this. When I was 20 years old, I started buying penny stocks and I lost all my money in one day. So I don't want that for any of you out there, and I am so thankful for that experience. The reason why I'm thankful for that experience is because if it was successful, if it ended up being successful.
32:59 Andrew Giancola? That would have probably been more detrimental to me than the fact that I lost all my money in one day because I didn't have a lot of money at that time. So it wasn't that big of a deal. And so index funds don't make for exciting investing. And for young investors, you want some excitement. I get it. You want that thrill. You don't really have a lot of responsibilities and you want to buy some of those investments. But in reality, you need to build up your core. This is going to be the area and the foundation that helps you long term the most. And this is really where your wealth is going to be built because you have the longest time horizon of anybody else. So you have the greatest asset of all, which is time. So I would rather you invest your extra dollars or your fun money into things that are going to help you grow your income so that you can fund more of this foundation and get to the point in time where then you graduate on to some of these other tiers
33:42 Andrew Giancola? like the growth phase and the speculative phase. Next is picking actively managed funds with high expense ratios in the foundation tier. You want to make sure that you're looking at the expense ratios and how much these funds cost. Because if you have a higher expense ratio, they can underperform the S and P 500 dramatically just because of how much you have in your expense ratio. Now, expense ratio is not the only reason not to invest in a fund. You need to dive deeper into what the fund has done historically. But I want you to make sure that you are looking at this because if they are charging five to 10 times the fees, that is going to be pretty, pretty high. Now, a good expense ratio is anything above 0.30% or less, 30 basis points or less. That is going to be the point in time where you want to look at this and go from there.
34:26 Andrew Giancola? Not investing in the foundation during debt payoff. Now, the third one is not investing in the foundation when you have low interest debt. I have seen too many people prioritize low interest debt and not invest whatsoever. Maybe they're trying to pay off their mortgage or they're trying to pay off their car loan, but it's a 3% to 4% loan. No, you want to make sure that you are still investing your dollars for your financial future in the foundation especially. And then the last one is holding too much cash in the name of being safe. Now, anything outside of your core emergency fund and your SWAN number, if you're just holding cash to hold it or you're holding it for the right time to buy into the market, that is a ridiculous thing to do. You want to make sure that you're getting your dollars invested so they are working more for you. Now let's talk about some of the common mistakes I see within the growth tier, which is
35:10 Andrew Giancola? Going to make up about 15% of your portfolio or less. This is going to be overloading on a single sector. So I have seen too many people who are not diversified enough in their growth tier portfolio. And they start to end up over emphasizing their portfolio. Maybe you're investing too much in healthcare. Or if your day job is in healthcare and then you're investing in other healthcare companies because that is what you know. Well, you are pretty heavily weighted in healthcare and you don't even know it. Also, is letting the growth tier creep above 15%. I see this happen a lot unless you're really good in some specific area. Or let's say your strategy going forward is you think you want to double down on dividend growth investing. Well, that's completely fine and you can move that as part of your foundational portfolio. But you want to make sure that you know what you're doing.
35:53 Andrew Giancola? If you creep outside of this, you know, 15% range, that is going to be something that really doesn't make a ton of sense for most investors out there. Now, for some it does. We could talk about this with individual stocks. We could talk about with some of these other ones, but this is something that you just want to make sure that you're watching out for. And you understand what percentage of your portfolio is in this growth tier. Also chasing last year's top performers. I have seen a lot of people chasing gold right now, chasing silver or chasing Bitcoin at its highs. How many of you bought Bitcoin at 120,000 because you saw everybody else getting in there? And all of a sudden now, at the time of recording this, it's at, you know, $66,000. Well, if that's the case, you've felt this pain before where you're chasing last year's top performing sector. Instead of looking for the next thing, especially in the growth tier, you got to be able to identify some of the things that are worth investing more in.
36:38 Andrew Giancola? And then the last thing is confusing growth with speculation. Too many investors invest in things like Bitcoin or gold or silver too early. I think this needs to come later on in the line. That is my opinion. You could do your own research, but that is my opinion. Now, what are the biggest mistakes with the speculation tier? Again, remember this is your Bitcoin, gold, silver, those types of things, 5% to 10% of your portfolio. Well, starting here instead of the foundation is number one. Most people, again, like I talked about, start in the wrong order, especially when they're young and they don't know what they're doing. Do not start with the speculation phase. You got to start with the foundation first. You got to put in your dues. You got to earn your stripes before you can get to the point in time where you can invest in some of these. Now treating speculation like a savings account is something that I've seen a lot of people do. They've saved their money in a speculation account, thinking that over time,
37:22 Andrew Giancola? they can utilize this as their emergency fund because they have a longer time horizon. Do not do that. Making sure you have this in the right spot is going to be important. Also, three is people who use sports betting as part of their speculation percentage. Do not do that. Betting or gambling is not part of speculation. It is not part of investing whatsoever. That is not investing. You're just gambling. And so you cannot use that as part of your speculation tier. That is very important. Four is not going over 10%. Do not go over 10% if you're trying to look at speculative assets. It just doesn't make sense with a lot of folks. Now, if you can come up with a good reason that you can put into your investment plan, that is completely fine. But for me, it doesn't make a ton of sense. And in the speculation tier, the last thing I'll say
38:06 Andrew Giancola? is emotional trading. I've seen a lot of people get emotional. And the reason why they get into these speculative assets is because they got emotional. They feel like they've missed a boat. And so they try to get in these too late. And a lot of times, for most of you, this is an emotional area to invest your dollars. And so that's one that I want you to make sure that you are not making as well. Now, the universal mistake that I see people make across all sectors is not having the foundation fully funded before they move on to the next steps. The foundation needs to be fully funded before you can move on to some of these other steps. It needs to be what you truthfully have in place for your first few hundred thousand dollars. Then you can move on to some of these other steps. Until then, spend all of your time trying to build up that foundation. And then you can add in some diversification as time goes on.
38:52 Andrew Giancola? All right. So that is the portfolio pyramid. You're going to hear me reference this a lot of different times throughout the podcast because this is the foundation of how you need to think about constructing your portfolio. If you guys have questions on the portfolio pyramid, let me know. And we'd be happy to dive deeper into any of those. But speaking of questions, we're going to dive into a bunch of your questions that you sent in via email in the Master Money newsletter next.
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44:24 Andrew Giancola? All right, perfect. Question one comes from Christopher. I'm going to be debt-free at 25 with a master's degree and a low income. What can I do beyond a high-yield savings account emergency fund to start building long-term wealth? And how much per month should I ideally be putting towards that emergency fund? So, Christopher, this is a wonderful question, and I'm so glad you are thinking about this moving forward. And congratulations to you on getting your master's degree. I think that's absolutely fantastic. And you're going to be starting with a low income. I think that's the first thing that we need to note. And to understand why we are starting with a low income, we can talk through that. Maybe you are someone who is going out into an industry like social work, where you're not going to make a lot of money. You're going to be a teacher, and so maybe your income is capped. But if it's not capped, I would first consider, how can I increase that income over time
45:08 Andrew Giancola? to make sure I am really building a powerful growth engine here? But if that's not the case, and you are passionate about teaching, and you're going to be a teacher, then let's talk through some of the options and the ways that I would think about this. Number one is your emergency fund is going to be the core foundation of where you want to start. You want to make sure that you are getting dollars into your emergency fund, especially if you have a low income, because you want to make sure that you have that foundation in place to protect you against life. So doing the 1-3-6 method, meaning one month of expenses first, paying off any high-interest debt, which you won't have, then three months of expenses, and then getting eventually to six months of expenses. And so that's going to be the starting point when it comes to the emergency fund is Building that up and just taking a portion of your income every single month. You could start with 10 to 20% and starting to send it over to the emergency fund.
45:54 Andrew Giancola? Next, if I were in your shoes, I'd be looking at a Roth IRA. So the Roth IRA obviously has money that goes in. That's already been taxed. It grows tax-free and you could pull the money out tax-free. Now, if your employer is going to offer a Roth 401k, even better because you can get more money into that account. But you want to make sure that at a bare minimum, even if you are someone with a low income, you're trying to at least max out that Roth account because this can be a tremendous benefit for you long-term. We have something, if you go to mastermoney.co/resources, we have an investment calculator there where if you just put in the Roth contribution limit every single year of $7,500 in that thing, and you look at how much it can compound over the course of the next 40 years for you. Let's say you retire at 65. Over the course of the next 40 years, it is millions of dollars that you can have inside of your Roth IRA.
46:39 Andrew Giancola? So it is a wonderful place to do this. If you're wondering where to open up one, you could do Vanguard, Fidelity, Charles Schwab. There's other great places too now like Public that do 1% matches. There's places that are really, really powerful there. Now, if your employer offers a 401k or if they offer an employer sponsor plan, I want you to also make sure that you are getting the match. The match should be the first thing you do when you invest your dollars is getting that employer match because it is 100% rate of return and it is free money. It is free money that you can use to build wealth over time. And for most people out there, getting the employer match can make a huge difference in retirement, especially when you don't make a lot of money. Even if it's 100 bucks, 200 bucks, 300 bucks per month that you are investing, it is going to make a huge difference because you have a long time horizon.
47:23 Andrew Giancola? Those who don't make a lot, they really need to get started investing early and they are going to have a huge competitive advantage to even folks who do make a lot that get started when they're 40 or 45. You could outperform a lot of people out there just because you are starting early, which is why it's so powerful that you're asking this question now. Now, beyond retirement accounts, you have your traditional 401k if that is available to you or traditional IRA, which would be next, but also looking at taxable brokerage account. Let's say even on a low income, you could do this. Let's say you want to retire early. Well, let's look at our taxable brokerage account and make sure we're getting a few dollars in there as time goes on. Bridge ourself if we want to retire early. Let's say you want to retire in your 50s and you want to have some money, get you over the hump over the course of the last five years of your retirement.
48:06 Andrew Giancola? Well, if that's the case, the taxable brokerage account is perfect for that. And why it is such a wonderful account for most people. Now, one big key is if you're not making a lot is to keep your lifestyle modest. So modesty, living like you do while you're in college for as long as you possibly can, can be one of the best superpowers because it's going to help you build up the foundation that we talked about here in the portfolio pyramid, where you can start to build out that foundation. And I would try to go after things like coast five, for example. So when you are first starting out, getting as much money invested, trying to pursue coast five, which is a point in time where you have enough money invested that will carry you to retirement. And that way you don't have to worry about anything else out there, especially on a low income, avoid consumer debt, avoid any type of debt that is going to make you fall backwards.
48:51 Andrew Giancola? Try to avoid taking on big debt when it comes to cars. Try to avoid the massive mortgage with a high interest rate. Those are the types of things that are really going to get you into trouble. It's food, transportation, and it's going to be obviously housing. So those are the three that I would really, really make sure that I'm focusing on and resist the urge to upgrade everything. If you try to upgrade every single thing within your lifestyle because you have a low income, it is much more detrimental to you than it would be for someone with a high income. And you can't compare yourself to people with high incomes. If you are starting off with that low income, it's very, very important to make sure that you are step by step, thinking through this as we go about this. So congrats to you. Congrats to you for getting out in the real world. Congrats to you for thinking about this stuff.
49:34 Andrew Giancola? This is one of those things that for most people, they haven't thought enough about it. And I cannot thank you enough for sending this question in because I love, love, love the way your thought process is. So really good question. If you have any other questions on that though, please let me know. But those are the things that I would start doing. Let's jump to the next question.
49:53 Andrew Giancola? All right, the next question, we're going to dive into that next. And again, reminder, if you want to get your question answered on the show, you can absolutely do that by joining the Master Money Newsletter and responding to any of those newsletter issues that come out every single week. And you'll have a higher chance of getting your question answered on the show. The other place you can ask your question is on the Personal Finance Podcast Instagram page. You can shoot us a DM there and we may be able to answer your question down below. Or a lot of you have been asking questions on Spotify down below in the comments there, and we have been answering those. I know Apple Podcasts is about to launch video as well. And so when they do launch video, I'm assuming they will have comments that you can ask under there or on YouTube. So all these are great places to ask your question and we will compile those questions. But the ones that we prioritize are the ones on the Master Money Newsletter,
50:38 Andrew Giancola? because that's our community of people who are really, really taking this seriously. And also, by the way, just a reminder, Master Money Academy, you can ask these live every single week to me and I will answer your questions. We've had some great conversations in Master Money Academy as of late. All right, next, this is a good question. So I am part of the Georgia Teachers Retirement System. I currently make $165,000 and will retire at 52 with $99,000 per year guaranteed for life, plus 2% added every year I work beyond 30. That's absolutely incredible. Does having a pension like this change how I should approach my 401K or other retirement accounts? What else should I be doing? So the first thing I want you to understand, because as I look at this, I just, my jaw dropped the first time I read this.
51:22 Andrew Giancola? A guaranteed $99,000 per year for life, starting at 52, is an exceptional. I mean, there is nothing else out there like that retirement foundation. In fact, that is the same thing, just thinking about this for a second. If you use the 4% rule, that is the same thing as having $2.5 million invested in a portfolio drawing down at 4%. That is an amazing starting point to be in. At your current salary at $165,000 per year, your pension will replace about 60% of your income currently from day one in retirement. So before any other accounts are factored in, about 60% is already covered if you want to continue spending $165,000 per year. Now, every additional year you work beyond 30 unlocks
52:07 Andrew Giancola? an additional 2% more, which compounds the value of staying even longer. I mean, this is the kind of perk that would be a perk where I would take a job in and you'd be able to do some really, really cool stuff. So I think that is absolutely fantastic and what a perk that is. Whatever county you're working in, I think the people are going to start flooding over in that direction at some point in time. Now, does having a pension change the way you think about your 401k? Yes, it absolutely does, especially when it is a guaranteed pension. Because some pensions are not guaranteed. Maybe you have to have a certain percentage vested before you actually get that pension. Now, you could think about your 401k in a different way. Because a lot of your basic survival needs are covered with that $100,000 per year.
52:50 Andrew Giancola? You could think about your 401k as this is going to add in flexibility, or this is going to add in more wealth or lavish lifestyle, or this could also be for legacy. If you have kids or you have people in your life that you want to leave a legacy to, this can be part of that as well. Now, if you want to spend more than $100,000 per year, plus the 2% increases, and I would do the math to make sure you understand where that's going to land and when you want to retire. But I would make sure that at age 52, if you do decide to retire at 52, I would make sure that I have the rest of these dollars covering what the rest of my lifestyle is, because it's going to reduce the overall amount that you need in retirement, because you have that pension in place, which is why it's so beautiful. Now, for those of you out there who don't know this, we have something called the Retirement Calculator. If you go to mastermoney.co/resources,
53:35 Andrew Giancola? the Retirement Number Calculator is going to give you exactly this scenario. What we do is we actually walk you through step by step exactly what you need to do, and you put in your income that is going to be in retirement. So in this case, you could put in $99,000 as your income, and it will spit out exactly how much you need in your portfolio based on how much you want to spend every single year. It is such a cool tool. I'm so proud of it. So make sure you check that out if you have not. Go to mastermoney.co/resources, and we'll link it up down below in the show notes as well, per usual. So if you are thinking about this, what you want to do is figure out, okay, how much first do I want to spend in retirement? That's number one. Number two, you want to then think through, okay, well, am I going to have debt in retirement? If you're not going to have debt in retirement,
54:20 Andrew Giancola? that's fantastic. This calculator does this, by the way. Three is healthcare. So healthcare is going to be the biggest gap in your overall target right now because retiring at 52 means you have 13 years before you can have Medicare of eligibility. And so because you have this 13-year gap here, you want to make sure that overall you are thinking through that gap and how it's going to be funded. So that should be part of your retirement plan. And the cool thing about our retirement calculator is it actually will walk you through this too. And also add in the average inflation rate of healthcare inflation over the course of the last couple of years. But this is one of the most important things to plan for is that 13-year gap and how you're going to fund healthcare during that timeframe. Now, if you get the benefit of healthcare along with this pension, because you're already getting so many amazing benefits, I wouldn't put it past them. That is wonderful.
55:05 Andrew Giancola? But if not, then we want to make sure we plan out for that. But then also consider what you want your retirement to look like, because I want you to think through and dream big. Do you want to travel a lot? Well, let's make sure we have enough money every single year for you to travel. So we need to put that in our portfolio expenses. Do you want to do certain things or join a country club? Do you want to have time to drive a nicer car than other people? Do you want to make sure you have your house paid off? How are you thinking about retirement? What's that going to look like? Because we will ultimately want to get to the number that we are spending every single year. So let's say we're going to keep using the amount that you make right now. And let's say you want to spend $165,000 per year in retirement. Well, 100 of it is already covered. So that would mean if you use the 4% rule, that we need right around an extra $1.5 million invested in our portfolio.
55:50 Andrew Giancola? Well, you can fully fund your 401k over the course of the next couple of years and probably get pretty close to that, depending on what you're invested in. But if you want to spend less than that or you're okay spending less than that, then it could be less of a need. Now, because you're retiring early, one other consideration I would say is the 4% rule was based on, you know, holding your portfolio over the course of 30 years. You may want to reduce the amount that you're withdrawing by 3.5% or 3.7% or get to that round, nice rounded 4% because 4% is actually very conservative. For most folks now, they're looking at 4.7 or even closer to 5. percent drawing down on their portfolio based on kind of restick recent and updated events. Bill Bangen, the creator of the 4% rule, actually updated in his recent book that the 4% rule is
56:33 Andrew Giancola? really closer to 4.7, 4.9%. So a lot of people are reevaluating their retirement based on that. And we'll dive deeper into some of those withdrawal strategies in some future episodes, but just want to make sure that we make note of that. And so here's how I would consider this is if you're thinking about spending a lot more than the $100,000, I would max out the 401k or look deeper. And if I were in your shoes, I would max out the 401k. I would get some money in a Roth IRA as well, try to fill up those contributions. But also, if you're going to retire early, if you're going to retire in that 52 range, I'd fund a taxable brokerage account pretty heavily, meaning I'd put a lot of my portfolio in that taxable to give me a bridge account so that over the course of the last eight to 13 years, I have enough money to cover healthcare and the rest of my expenses.
57:14 Andrew Giancola? And so that's going to give you more flexibility and eligibility as time goes on in this phase. So really, really cool stuff. Thank you so much for sending in your question. That's the way I would think about this. This is why your plan changes is because you can actually subtract the amount that you're going to spend every single year by the pension amount. And so all you need left is that portfolio gap, which is the difference between your pension and the amount that you spend every single year in retirement. Now, this number may change on a yearly basis, so that's why we created that retirement number calculator, so that you can track your retirement number on a yearly basis. I think that's imperative for every single person, no matter how young you are. Great question and congratulations on A, your income and B, that pension. That is absolutely phenomenal. And question three, and I'm loving these questions. These advanced questions are wonderful. So question three is from Miguel.
57:58 Andrew Giancola? I am retired with a $1 million plus 401k rollover and I earn $110,000 a year in retirement income. My taxes are high and so are my Medicare costs. What are the best ways to lower my tax burden in retirement? Miguel, this is a wonderful question and I think for a lot of folks out there, this is something that is going to be helpful to them as well. So number one is I want you to understand why your taxes and Medicare costs are both high. A $110,000 retirement income means that you're likely in the 22% or possibly the 24% federal tax bracket, depending on your Tiling status and your deductions because of where you are and some of those things like that. And so Medicare uses a system called IRMA, which is the income related monthly adjustment amount
58:43 Andrew Giancola? formula, which charges higher premiums to retirees above certain income thresholds. And so for a lot of folks out there, the more taxable income you that you report, the higher your Medicare part B and part D premiums become. So reducing your taxable income actually has a double benefit. Now for you specifically, one of the most powerful tools that are available to you are going to be Roth conversions. Because since your money is sitting in a traditional 401k rollover, every dollar you withdraw is taxable. So a Roth conversion means that you can move a portion of your money into a Roth IRA each year, paying taxes on it now. And so you may have a big taxable in that first given year, but all future growth and withdrawals are completely tax free. And so that's going to help you tremendously in the long run when we think about this. But the goal is to convert this strategically.
59:28 Andrew Giancola? So we want to fill up your current tax bracket without jumping into the next one to reduce your RMD. This is where someone to be in your corner, like a CPA or an advisor is going to really, really help you when you're starting to think about this. And so then the third thing I want you to consider is being strategic about your RMDs or your required minimum distributions. At age 73, for those of you out there that don't know what an RMD is, the IRS requires you to start taking withdrawals from your traditional 401k rollover, whether you need the money or not. See, Uncle Sam said, hey, you have not given me my tax money yet. I want to get it at some point in time, so I'm going to get it right now and force you to withdraw money from there. And so the larger your traditional balance, the larger your RMDs will be. And this is going to push your income and IRMA costs even higher in your specific scenario.
1:00:13 Andrew Giancola? And so doing Roth conversions now before the RMDs kick in are going to help you tremendously just on that tax front as well. Now, once you reach age 70 and a half, you could consider things like a qualified charitable distribution if you wanted to, and you could donate up to $105,000 per year directly from your IRA to a qualified charity. That's one thing that you could consider if you are charitably inclined. But that is not for everyone. If you're not charitably inclined, that's not something you have to do. Now, I would highly encourage you to kind of look at your income sources and how they are taxed as well, because not all income sources. Or taxed the same way. Social Security, for example, may be partially taxable depending on your combined income and managing how much you pull from taxable accounts each year can affect how social security gets taxed.
1:00:58 Andrew Giancola? So social security could be taxed pretty heavily if we're not careful about where we're pulling from these accounts and don't have a strategy in place. So here's what I would do is I would, A, have a conversation with your CPA or a fee only financial advisor to make sure that we are doing a couple of different things. I would consider, one, to look at your current income and asset level with your CPA and say, the tax decisions that you make today over the next several years are going to have a significant impact on the long term and how long your money lasts over that timeframe. And so I want you to make sure that you are talking to someone to kind of help you through that process. Now, you can talk to someone in a couple of different ways. A CPA is just going to be a fee that you have a conversation with them. If you already have someone in your corner, that's great. You can ask them a couple of these questions. A fee only advisor, you can do it a couple of different ways. One, you could find someone who just charges a flat fee to put together a plan for you
1:01:43 Andrew Giancola? or have a conversation with you. You can talk to someone who gives charges an hourly fee and/or you can actually decide to hire an advisor to be in your corner to help you through a lot of this stuff to move that stuff over. So there's three options there, but they can really help you when it comes to some of this stuff. And with tax projection, they can help you identify, you know, how much to convert, when to convert these money, when's the optimal time to convert those dollars? And it's really important to have these folks in your corner when you're doing this. Now, if you don't want to have them in your corner anymore, you don't want to pay somebody after you complete all this stuff, you can absolutely make that shift, but you need to make sure that somebody is helping you through this process because it can get complicated based on individual folks' financial situations. So that's another big one that I just want you to think through as you're planning out your retirement. But really good question, and you are in a wonderful position to make some good moves like that.
1:02:28 Andrew Giancola? Hey, having to do Roth conversions are, is a good thing. It is a good problem to have, and it's a good problem to have to think through. And having that income coming in is absolutely fantastic. So congrats to you on this because I think Miguel, you are in a wonderful, wonderful spot, but it's just making sure we do some tax optimized things to ensure you do not overspend on taxes when it comes to RMDs and some of that stuff coming up. Perfect. Let's jump into the last question. All right, last question is from Matt. So as I near retirement, I'm thinking about how to manage my portfolio through retirement, how to protect myself if my mental faculties decline and if someone takes advantage of that, and how to take care of my kids in a world of enormous government deficits and rapid technological change. How do I plan for all of this?
1:03:10 Andrew Giancola? Well, Matt, this is a great question and a common concern that a lot of people have. I know this is stressful for a lot of folks out there. And I just want to talk about managing your portfolio through retirement first, and then we'll kind of go through protecting yourself as time goes on here. So the biggest shift in retirement is going to be going from the accumulation stage that we kind of talked about upfront in this op episode to the preservation stage. That is going to be much more difficult than I think most people realize. And you need to figure out how to mentally get over that block. Now, a common framework for a lot of folks, and we've done an episode with this with Jesse Cramer. It was the first episode when he came on, talking about the bucket strategy, where you can think through or build out a strategy where you have a couple of years of cash on hand that you are using and spending those dollars.
1:03:54 Andrew Giancola? What this approach does by having a couple of years of cash on hand is it allows you to sell stocks during optimal times. It reduces your sequence of return risk and allows you to sell stocks and you can live off the cash. If there's a downturn, you can wait an extra year and you have some cushion there. So you don't have to worry about some of those downturns. And then you can make sure your asset allocation reflects your income needs and things of that nature. Now, protecting yourself from financial exploitation as you age is a really important thing to do. Because I like, I think a lot of people underestimate how often this can happen. And so you want to make sure that you first start by assigning a trusted person as the durable power of attorney within something like a trust to manage your finances that can act on your behalf if needed.
1:04:38 Andrew Giancola? So if there is someone in your life who you feel as though is the most trustworthy person or someone you absolutely trust, then setting up a trusted contact can be really, really important. Now, if there's nobody in your family that you trust, you can also set up something like a contact person from your brokerage who can work on your behalf. Or you can simplify your accounts as much as possible to make this a lot easier for someone else to manage if they are your overall durable power of attorney. And you could look at something like a revocable living trust, which keeps your assets kind of managed and organized, even if you're not able to continue to manage them going forward. And so this is a great way to look at this and it helps, you know, assign people to give them the ability to manage this portfolio. If your cognitive ability declines, so that's going to be something that I think
1:05:23 Andrew Giancola? could be really important for you, but I would build that estate plan now. I wouldn't wait too long to build an estate plan, a will, a durable power of attorney, healthcare directive, beneficiaries, all those different things are really important. I, you can go to a place like trust and will and get it done for cheaper. I went to an attorney in my area, it cost me about $6,000. We put together a trust and in that trust, we were able to kind of set up all of this kind of stuff and be able to have the ability to direct where this stuff is going to go. If my cognitive ability declined, but once you have a plan in place, especially when you're going to draw down on these portfolios, you can put it up in your trust or will that this is exactly how it works. This is how much I'm going to draw down. This is where it goes if something were to ever happen to me. And this is how my money is going to be set up. Now, taking care of your kids in an uncertain world is a really important question to ask.
1:06:08 Andrew Giancola? We could have an entire podcast episode talking about this, but the best financial gift that you can give your kids overall is having a financial education. That's the most important thing that you can give them because if they know what to do with money, whenever it hits their bank account or whenever it touches their hands, they are going to be much better off than someone who has just handed money. So that's the first thing I would definitely recommend you doing. Beyond that, one of the best places to pass on your assets is actually the Roth IRA. Most people, and this is not talked about enough on this show, but the Roth IRA is a wonderful way to hand down money to some of your heirs. But your trust is going to help you through that process. Your trust is going to be the way that you can figure out exactly how much money goes where. And you have that durable power of attorney to help you manage that.
1:06:51 Andrew Giancola? Now, planning for things like government deficits or things like that and technological change are really important. One is government deficits raise the real possibility of being taxed more in the future. This is why I like the Roth IRA so much. I am uncertain of where taxes will be in the future. And so because of that, we would have to rely and trust politicians to make the right choices going forward. And I just want to Focus on the things that I can control, which is why I try to get as much money into a Roth as I possibly can. But diversifying across different account types is going to help you hedge against this risk, especially when there's policy uncertainty right now, you know, within the government and a bunch of things that are happening. Now, as technology advances, we're seeing AI advances for sure. And so preparing your kids for that is going to be really, really important.
1:07:34 Andrew Giancola? Even with my young kids, I've already started having conversations with them about AI. I've started to teach them how to use it. My son and I, like I talked about in the episode, we are working on a business idea where we're using AI for sports cards and just getting them involved and starting to work through some of this AI stuff can be really important. But I want you to know this because I think this is the most important thing overall, Matt, is I want you to understand that you cannot plan for everything perfectly. It's not going to go perfectly, but you can do the best that you possibly can with just some of the stuff we just chatted about here. Getting some experts in your corner, making sure they can help you through this process is money well spent. It's going to give you peace of mind. It's going to give your family peace of mind because now they know exactly what's going to happen moving forward. So a trust is a great way, if you're worried about this stuff,
1:08:18 Andrew Giancola? a trust is a great way to make sure your dollars go to the right place. And education is a great way to make sure that your kids know exactly what to do with money, what to do with technological advances and how to think about money going forward. The most important thing that you can do right now is getting the foundation in place, making sure you have the right accounts in place and the structures in place. And that's done with a CPA, having an attorney in your corner so that you can get this stuff done correctly. Retirement planning is really about three things all working together. And you are already thinking about this in the right way where you get your psychology in place, you get your investments in place, you get your spending and your trust in place. And when you get the stuff in place, it's very, very important. Now, I would again, highly encourage you to check out our retirement number planner. That's going to help you just think through a lot of this stuff too.
1:09:02 Andrew Giancola? If you haven't used it already, it's at mastermoney.co/resources. If you have not checked that out yet. Listen, thank you guys so much for sending in your questions. Again, if you want to send in your questions, join the master money newsletter by going to mastermoney.co/newsletter. And if you are looking to get your questions answered live like this every single week on our coaching calls, I would highly encourage you to join Master Money Academy. This is our Community of people who are wealth builders who are working together for one common goal. We all want financial freedom and so we're working together. People asking questions in there about their financial scenarios. We are sharing each other's wins. We are celebrating those wins, but also we have all of our courses in there. We have all of the coaching with me in there and we can give you a seven day trial on this podcast. If you want to check it out, you can check out the link down below in the show notes. We get a seven day free trial.
1:09:47 Andrew Giancola? Join one of our calls. Check out some of the courses and see if it's right for you. If it's not right for you, you get to see behind the curtain. No hard feelings, no worries whatsoever. I am there to bring you as much value as I possibly can. Again, thank you so much for being here and we will see you on the next episode.
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