Beginner’s Guide To Investing (2025 Edition)

The comprehensive guide to investing that breaks down the essentials for beginners, covering everything from the basics of stock market investing to tax-efficient strategies. Whether you're worried about not having enough money to start or feeling overwhelmed by investment choices, this episode provides clear, actionable steps to help you build lasting wealth by building a personal financial plan. Jump start your journey with our FREE financial resources Reach your goals faster with our products Take the relationship to the next level: become a client Subscribe on YouTube for early access and go beyond the podcast Connect with us on social media for more content Bring confidence to your wealth building with simplified strategies from The Money Guy. Learn how to apply financial tactics that go beyond common sense and help you reach your money goals faster. Make your assets do the heavy lifting so you can quit worrying and start living a more fulfilled life. Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  Cheers to fall savings at Whole Foods Market, home of higher ingredient standards. This Halloween, share chocolates and candies, made without that spooky high fructose corn syrup. Throwing a party? Make it easy with a Berry Chantilly Cake. Ready to cook pizza? No antibiotics ever chicken wings. And sushi made fresh daily. Fall gatherings never tasted better. Save through November 3rd at Whole Foods Market. I don't know what I'm doing. Need a break. Forget it, I quit.

• 0:31Speaker 01

  Escape to Pluto TV.

• 0:33Speaker 02

  This is objectively fantastic.

• 0:34Speaker 01

  Relax into the movies and shows you already know and love, all for free. Shwing! Even our news is uplifting.

• 0:40Speaker 02

  You stay classy, San Diego.

• 0:42Speaker 01

  Watch Tommy Boy, Crazy Ex Girlfriend, Anchorman: The Legend of Ron Burgundy, The X-Files, Wayne's World, and so much more. We're not worthy! The best things on TV really are free. You just have to know where to look. Escape to Pluto TV. Stream now, pay never.

• 0:57Brian Preston?

  Beginners got to investing. If you want to know the who, the what, the where, the how, we got you covered.

• 1:09Speaker 04

  Brian, I am so excited to talk about this because we love investing. Investing is the path that most millionaires take to get to wealth. And it is this wonderful, beautiful, amazing thing that you can do where you can actually have your dollars work harder than you do. But it seems on the surface that sometimes there's a lot of stuff you have to know about it. It can be confusing. There are acronyms and there's different types of options and there's different ways to do it. And everybody, and I mean everybody, has an opinion on the best way to do it. So I'm glad that we can walk through today what you need to know when it comes to investing.

• 1:52Brian Preston?

  Well, I remember when I got my first job and I knew I wanted my money to work for me. I knew I didn't want to be in this thing all by myself where just my labor and where that was it. I eventually wanted somebody to step up so that I worked because I wanted to, not out of the obligation. I wanted my money to work just Just as hard as I did. So I didn't have to use my back, my hands, my head and my brain.

• 2:14Speaker 04

  Yep.

• 2:15Brian Preston?

  So this is going to be the how you do it side of the thing. So if you're like I was in my twenties, I don't care the typical American doesn't start even thinking about investing until their thirties. I don't care where you are. We're going to come to you right now and hopefully load you up with how you can start buying small quantities of bigger things and create tremendous success for yourself. Because here's the reality of the world. There's a lot of things working against you, whether it's taxes, whether it's inflation. We have to flip the script and the way you do that is by owning things versus just living in this world where everything around you, you're renting and not buying it.

• 2:56Brian Preston?

  So we're going to get into that today. So you understand that as you buy into whether it's stocks, mutual funds or other things, you can put that ownership to work. So you don't have to do so much yourself.

• 3:07Speaker 04

  Yeah. At its core, investing is simply taking ownership in something. You are sacrificing some of your hard earned dollars to become an owner of some other type of asset, whatever that asset may be. Today, we are specifically going to focus on liquid investments, which are available to everyone. Everyone out there can invest in these types of vehicles. So we're going to walk through already said this, Brian, the who, the what, the when, the where, and the how much so that at the end of this episode, you can get started building your great big beautiful tomorrow.

• 3:40Brian Preston?

  So you heard me say, I figured this out in my early twenties, but the typical American is in their thirties. But the big question is, who should invest?

• 3:50Speaker 04

  It's the very first one. Who is the who in who should invest?

• 3:55Brian Preston?

  Now, this shouldn't surprise you. I think everybody should have the opportunity where their money works just as hard as they do. So the answer is everyone should be an investor.

• 4:06Speaker 04

  With, with, with just a slight little asterisk. There's a slight little asterisk in that. Everyone should be an investor so long as you at least pass step one of the financial order of operations. Remember that's the nine. Tried and true process of what to do with your next dollar. Step one is having your deductibles covered. Before you start investing, before you start putting your money to work, you need to make sure you have a little bit of money on the sidelines that can keep your financial life out of the ditch. So if you want your free copy of The Financial Order of Operations, feel free to go out to moneyguy.com/resources and download yours. So then, once you get past step one, then everyone.

• 4:47Brian Preston?

  But wait a minute. I think we just said everyone, but I can already hear the voices out there. They're gonna be like, guys, I'm young. I'm broke. I don't have any margin in my life. I want to cover what are some of the investing myths that keep people from actually starting to build their army of dollars?

• 5:08Speaker 04

  You just hit the first one. I can't invest because I'm too young. I just started out in my career and I'm only 22, 23 years old. And yeah, I know about investing, but that's for, that's for people who haven't figured out. That's for people who are more advanced in their career. That's for people later on in life. That's just not for me as a young 20 something. I'm too young to invest.

• 5:30Brian Preston?

  Well, this is the one, I mean, full stop. I want you to lean in on this. If you are a young person and you're looking, you feel like, you know, the world is kicking my rear end right now because we've, we just came out of this inflationary period. Things cost so much more and you're just mad. You're like, I can't believe this world is stacked against me. This is the part I need you to understand. Yes, some of those things are going to be hardships. But realize you are a billionaire of time.

• 5:59Speaker 04

  That's right.

• 5:59Brian Preston?

  And when you're young, every ounce of your time that you actually put into investing is going to exponentially benefit you because you're going to be able to exploit the eighth wonder of the world, which is compounding growth. And that's why we have devoted so much of our resources and so much of our education, trying to pay it forward to young people to understand every dollar for a 20 year old is worth $88 at retirement.

• 6:27Brian Preston?

  Every dollar for a 30-year-old is worth $23. Still incredible, but there's a big drop from that 20-year-old that's 88. Every dollar for a 40-year-old is now $7. Every dollar for a 50-year-old is $3. Do you see that? So every time, literally, the difference between somebody in their early 20s trying to save and invest versus somebody in their 40s is a tenfold difference. So if you're a young person and you're mad that this world is stacked against you, turn it upside down and start exploiting the resources and the most powerful of the three ingredients of wealth building, that's time is on your side to make the most of it.

• 7:09Speaker 04

  And if you're sitting out there like, "Well, guys, I'm not 20, I'm 22, I'm 23." We actually have a tool for you. Go to moneyguy.com/resources and you can play with our Wealth Multiplier Tool. You can actually put in your age today and it will show you exactly what your Wealth Multiplier is. It'll also show you how just a very small sum of money can get you from a starting point today all the way to $1 million, or all the way out to $2 million. So being too young is not an appropriate excuse to not invest. It should be one of the number one reasons why you start investing. But Brian, let's talk about now, what about the other side of the equation?

• 7:45Brian Preston?

  Well, I just set a trap because now everybody who's out there who's not in their 20s and not even in their 30s is like, "See, this is why the system's now stacked against me because I'm too old." But guys, we have some realities for you. And this is one of those things that I covered in Millionaire Mission is that I don't think that anybody is too old to put their money to work. But we did a really amazing thing. If you're trying to look at this concept of buying your future time, do you realize the discounts that you have access to if you will just put a little bit of your hard-earned money, a little bit today for that great big deal tomorrow,

• 8:25Brian Preston?

  the discount rate is still incredibly good even beyond your 40s.

• 8:31Speaker 04

  That's right. It's not just a game for young people. We did an entire episode walking through this. And even for someone who's 40 years old, if you're trying to buy a future living expense, you can get it on sale right now at 90%. Even someone who's 45, you can get that future year on sale at 85%. That's how powerful investing in compound interest can be for you. So if you want to know more about that, and you want to understand this concept of no matter what age you are, you can still buy your time, make sure you go check out that episode called Buy Back Your Time, How to Buy and How to Own Your Time. So you can neither be too young to invest, nor too old to invest.

• 9:14Speaker 04

  Well, Brian, there's another one that we hear, okay, I'm not, it's not that I'm old and it's not that I'm young. I'm just too broke. I don't have any money. If I can't be investing tens or hundreds of thousands of dollars, should I even be investing at all?

• 9:28Brian Preston?

  Well, and, and look, our system is, is strong, but it does have, if I was picking on us, it seems like when you tell people who are in their twenties, when they're even their early thirties, when there's, because we, there's a reason we talk about the messy middle where you're, you're short on both time, you're short on money, you feel like life is just whooping up on you. And then here we are, we come out of, of nowhere and we say, hey, you need to be saving and investing 20, 25% of your gross income. People just close the book. They shut it off. They, they say, these guys are ridiculous. So that's why, look, I'm going to tell you, if you're just now starting out, don't let that turn you off. What I would encourage you to do, yes, that is aspirational. I just want you to do something.

• 10:10Speaker 04

  That's right.

• 10:10Brian Preston?

  Because something is better than nothing. And that's why we've even created a resources and illustrations we'll show. If you just start off with 1%, because remember, I got motivated to really get my life in order when I had a teacher tell me that a hundred dollars a month could potentially become a million dollars for me in retirement. It changed my entire outlook towards life. And that's why we've also created a resource that says, if you can just save 1% more, look at how much this is going to do for your future self. So do not sleep on this opportunity.

• 10:42Speaker 04

  So you don't have to have a ton of money. You just need something and you can take. That something and put it to work for you. But maybe now you're saying, okay, well, I hear all these things, guys. But you know, the reason that I can't invest? I just don't know enough. I'm not, I'm not, I'm not educated enough. I didn't get a finance degree. I've never been exposed to personal finances. Well, don't you worry. That's exactly what we're here for. That's exactly what the Money Guy Show does. And you may be amazed to find out that building wealth is remarkably simple. Now, it's not easy because there are some behavioral things you have to do. But it doesn't have to be complicated. It doesn't have to be rocket science.

• 11:23Speaker 04

  And we have an entire enterprise here devoted to helping you do money better.

• 11:29Brian Preston?

  Well, here's the cool thing. You don't, it doesn't have to be perfect. You just have to have a curiosity and an aptitude to want to improve yourself. Because I think about my, my scenario. We both come from humble beginnings. I knew nothing about money when I was starting out, other than this, this rabid desire to improve myself. I had this accounting degree from Georgia. But look, I even made a lot of mistakes myself. My first investment ever, I think about the 20 something version of myself, who went to an insurance salesman, bought a B share mutual fund, which is, anybody knows, I think they pretty much have outlawed these things. You don't see B shares anywhere anymore because they were just structured so horribly. So even somebody who just starts out making mistakes, doesn't mean you have to stay that

• 12:14Brian Preston?

  way. And you can improve and get better. And we tried to create a system as well as resources, so you don't have to even fall into the same traps I did. And that's why if you could go out to moneyguy.com/resources, we will absolutely load you up. Because I like that we cut through the noise of life, whereas so many people trying to sell you products, there's so many people trying to sell you a shortcut. And we're actually out there ringing the bell, telling people, no, look, we're actually going to share the path to wealth building, the real path. It's going to be slow, steady work, but it is going to do more than you could ever think. Because these things go eventually get to a point where it's growing exponentially.

• 12:51Speaker 04

  All right. So we've laid out the case for who should invest. It's everybody, and we've gotten rid of all of your excuses. So now the natural next question you're gonna ask is, all right, well, what do I invest in?

• 13:03Brian Preston?

  Yeah, how do I do this?

• 13:04Speaker 04

  If I open up TikTok or I open up Instagram, there's millions of different things for me to invest in. We want to break it down for you. We want to make it very, very simple. When it comes to investing, when it comes to investing in liquid markets, the majority of what you're gonna see is gonna be broken into some distinct categories. Number one, you can invest in stocks. This is just companies you've heard of. These are Apples, Nvidia's, Home Depots. You can go buy a share in that corporation. You go buy one share of stock and you immediately become an owner of that corporation. Pretty easy, pretty plain, pretty simple. The other thing you can do is you can go invest in bonds. All bonds are, is they are loan obligations to either a company

• 13:47Speaker 04

  or a government or an entity where you're essentially loaning them some of your money. They're gonna pay you back an interest payment on that money. And then at the end of whatever that term is, you get your money back. So it's basically you turn into a loan shark. Not exactly, but you kind of turn in to the bank yourself. That's the way the bond works.

• 14:03Brian Preston?

  Well, everybody, I think a lot of people have heard the vocabulary of stocks and bonds, but they say, yeah, but okay, somebody tells me, because we, we are guilty of this, is we will show all kinds of projections and we'll say, look, if you make between seven to 10% rate of return, you'll do one level. How do you do that? I mean, which stock do I go buy? Which bond I go buy? Well, that brings in, we actually think there's even a better way. It was because there's a third pot, which is mutual funds and ETFs. And here's what I like about mutual funds and ETFs is that when you start off, it might be like I was in the beginning, a hundred dollars a month. Well, are you gonna go buy one individual stock with a hundred dollars? Is that even possible? Or bonds? I mean, which bond do you go buy? You know, for with a hundred dollars?

• 14:46Brian Preston?

  That's what I like about mutual funds and ETFs. They let you buy into baskets. Literally while we put this visual on there of holdings with your small sum of money. So it really gives you diversification, gives you a lot of power with your money. This is an incredible thing, but even with that, now that we've shown you these basic components, stocks, bonds, mutual mutual funds ETFs. Okay, you guys gave me some definitions. Good for you. You're almost as good as Webster. But what does this mean for how do I do this? What's the actual investment that I should be buying?

• 15:17Speaker 04

  Yeah, inside of that mutual fund and ETF type of investment, there's a type of investment that we absolutely love. It gets us so excited. And it's just called an index fund. And all this is, this is a specific type of mutual fund or a specific type of ETF that tracks a market index, meaning that it's trying to model or mimic a certain segment of the market. The one that we talk about all the time, that you're quote all the time, is the S and P 500 index. Well, all that's doing is it's a mutual fund or an ETF that tracks the 500 largest companies, largest stocks in this country. So rather than you having to go out and buy all 500 of them,

• 15:59Speaker 04

  you can just buy one single holding. You get exposure to all 500 of those stocks.

• 16:04Brian Preston?

  Well, I feel like I need to express my love affair with index funds. Why do I like index funds so much? Is because they really do. It is the solution to a lot of the problems I had when I first started investing is that, first of all, it's low cost. You don't seek index funds typically with like high commissions because somebody's selling them for them. You don't see them with high internal expenses. Here's the other thing, because they're an index fund, because it's just once a year or twice a year, they're adding or removing funds. It's not like there's somebody in there actively trading, trying to beat the market. There's not a lot what's called turnover. So these things are very tax efficient. And then what I like is, instead of all this noise, especially in the beginning, because we've all watched

• 16:47Brian Preston?

  movies and so forth, they're like, man, are you maybe now it's not movies. That's an old man thing. Social media is telling you crypto or all these other shortcuts to your wealth building. And then here's this thing, an index fund that says, instead of trying to beat the market, why not just? Be the market. I mean, that that is the powerful component because we love the value of what index are doing because now you can with one decision, get access to this whole basket of holdings. So that now that $100 a month, it's actually starting to take shape into an actual investment that's actually got potential to grow with the market and have success. And we actually have some numbers that show you what this can do and become in the future.

• 17:31Speaker 04

  Yeah, I mentioned earlier, the S and P 500. Well, if you just think about, okay, instead of going out there and trying to pick what stocks are going to be the best performers and how do I do that? And I just were to go buy the S and P 500. If you look at the performance of the total return, so that's the capital appreciation along with the dividends that are paid from the S and P, starting in January of 2000, all the way out to the end of 2024. If you were just buying that index over that time period, you would have experienced a 538% rate of return, just buying that one index, not having a finance degree, not having to pour through financials, not trying to figure out what stock to buy, just being the market allowed you to have over a 530% rate of return.

• 18:16Brian Preston?

  There's several things before we come off this slide, I can't help but with a little bit of tangent education is that everybody's heard of the Great Recession. If somebody, if you have the ability, whether you're on YouTube or Spotify, and you see this chart that we put up here, do you see how, yes, you can look at this and see 2008 was down? But doesn't it just like a historic blip?

• 18:36Speaker 04

  Just a little blip.

• 18:37Brian Preston?

  And what's funny is, is we went in doubt, zoom out. When we look at what happens with the pandemic, from the pandemic down to 2022, you see right now, it looks like a pretty good valley.

• 18:48Speaker 04

  Just another blip.

• 18:49Brian Preston?

  Time is going to make this once again, another blip. But still, some of you, and look, I'm never going to get mad if somebody is just says, you know what, these guys said the S and P 500. I don't get frustrated. I don't get disappointed when I see somebody's just out there buying the S and P 500. But you're going to, as you get into your journey with wealth building, you're going to say, yeah, but there's a big difference between a 20 year old investor is a big difference between a 40 year old investor is a difference between a 60 year old investor. Different needs from your money, but there's so that brings in this component of balancing out the risk and reward. We're going to probably need some diversification.

• 19:24Speaker 04

  Sure.

• 19:25Brian Preston?

  That sounds complicated. So is there anything that cuts through the noise of that? Yes, at the S and P 500 is great. How does that now integrate into diversification? Because I'm not exactly a spring chicken anymore. I'm 45 years old and probably retiring in the next 15 years. I probably need to mix this thing up a little bit.

• 19:45Speaker 04

  Yeah, the financial world has actually made it remarkably easy with the introduction of target retirement index funds. And these are simply baskets of index funds that are targeted towards a specific retirement date. So if you think that you're going to need your money and you're going to retire in the year 2050, then you would just go buy the target retirement index 2050 fund and you can set it and forget it. Right now, while you are young, it'll be more aggressive. And when you're further away from retirement, you'll have more stocks and more equities. But then, as you move through time, the allocation will automatically change for it. You're not having to like, figure out what to buy, figure out what to save, what to trade. It's going to naturally do it for you. And the way that they do these is all the target

• 20:30Speaker 04

  retirement funds of the index variety have what's known as a glide path. Where essentially, whether you are someone who is 20 year old, 40 year old, or 60 year old, if you buy the appropriate target retirement fund, you will end up in an asset allocation that most closely matches a reasonable risk tolerance for where you are in your journey.

• 20:51Brian Preston?

  Yeah, what I like about these is I once again, I take myself back to my younger self where I was kind of, I just, I had a lot of curiosity and I had a desire to make myself better, but I just didn't have all the knowledge. As I've shared, I'm not going to get mad at you if you have the S and P 500, but there is going to come a point to where you're going to say, man, I wish I could just figure out some resource or tool where it's still allowed me to take advantage of all the benefits of index investing. I like that low cost. I like the tax efficiency. But if I could just figure out how much I could save and invest, because I know in the beginning, I've heard these guys mentioned, my savings rate is so much more valuable than even what I'm choosing the investment. So if there was something that would let me answer

• 21:32Brian Preston?

  the question, how much can I save? And when do I need it? And then they handle the heavy lift? That could be a blessing in the beginning. Now, look, once you're in a millionaire and you've got, you know, you're getting close to being a millionaire, without a doubt, diversification, there's ways to maximize that. But I love index variety versions of target retirement funds for that person that's new to this journey, wants to get the benefits of diversification without all the chaos, and then get the benefits of index investing. There is a solution worth sharing, and that's why we kind of lay it out there for you if you're looking for that all-in-one type option.

• 22:11Speaker 00

  Cheers to fall savings at Whole Foods Market, home of higher ingredient standards. This Halloween, share chocolates and candies made without that spooky high fructose corn syrup. Throwing a party? Make it easy with a Berry Chantilly Cake. Ready to cook pizza? No antibiotics ever chicken wings. And sushi made fresh daily. Fall gatherings never tasted better. Save through November 3rd at Whole Foods Market. I don't know what I'm doing. Need a break. Forget it, I quit.

• 22:43Speaker 01

  Escape to Pluto TV.

• 22:44Speaker 02

  This is objectively fantastic.

• 22:46Speaker 01

  Relax into the movies and shows you already know and love, all for free. Shwing! Even our news is uplifting.

• 22:52Brian Preston?

  You stay classy, San Diego.

• 22:54Speaker 01

  Watch Tommy Boy, Crazy Ex Girlfriend, Anchorman: The Legend of Ron Burgundy, The Ex Files, Wayne's World, and so much more. We're not worthy! The best things on TV really are free.

• 23:04Speaker 00

  You just have to know where to look.

• 23:05Speaker 01

  Escape to Pluto TV. Stream now, pay never.

• 23:09Speaker 04

  We've talked about who should invest. We've talked about what you should invest in. Now, let's talk about another one. Where do I invest? And this one frankly can get kind of complicated. This seems a lot like an alphabet soup. Maybe you've heard of HSA, IRA, Roth IRA, 401K, 457, 403B. There are tons of acronyms, tons of numbers, tons of letters, and it can get very confusing. But we don't think that it has to be, and we like to. When we think about where to invest, we even have a structure in terms of how we think about those types of decisions.

• 23:45Brian Preston?

  First, because we're about to throw a lot at you, I just want you to buy. Bucklin, but I'm gonna tell you, take a deep breath. There's actually, and if you get overwhelmed by all these three buckets and all the things that are gonna be on this slide, remember, there is a better way to do money. So if you ever feel overwhelmed by what we're sharing, don't worry, it's built into the financial order of operations. You can always go back to the resource of moneyguy.com/resources. Look at the financial order of operations to figure out, because it's going to outline, it's naturally built into the system, these three buckets. Or if you want to have the origin story, don't sleep on Millionaire Mission, because this can help you out as well. But Bo, let's jump into, and I think it's kind of when we were doing the content meeting on this,

• 24:26Brian Preston?

  I was shocked we started with our favorite child. Usually you build up and you say, let's go with the child that's good, sometimes, but then, you know, but then, a lot of times they give us some troubles or they have some setbacks. We started right out of the gate with our favorite bucket of the three, and that's our tax-free bucket.

• 24:47Speaker 04

  And that's right. These accounts, the way that we break them into buckets is how they're treated from a tax standpoint. So the very first one is tax-free. These are things like your Roth 401K. So if you're getting your employer match and you're in step two of the financial order of operations, but you're making Roth contributions, that would be going into the tax-free bucket. Your Roth IRA is in the tax-free bucket. Your Roth 403B is in the tax bucket. Your Roth 457 is in the tax bucket. And even your Health Savings Account.

• 25:15Brian Preston?

  Triple tax advantage.

• 25:17Speaker 04

  All of these accounts are tax-free accounts, meaning when you put money in, you don't get a tax deduction, except for the HSA, the money grows tax-deferred, and then when you go to pull that money out, so long as you make a qualified withdrawal, those dollars are completely tax-free forever. So these are amazing accounts, buckets, structures, strategies, great places to begin investing your dollars.

• 25:41Brian Preston?

  Yeah, this is why, like I said, you're not supposed to name your favorite child. This is our favorite child. It's because it is so valuable that the government restricts who can participate. They restrict how much you can participate. So if you have the opportunity to invest in tax-free investments, Please take advantage of this and then maximize the investments that you put in this because think about the fact, if you've got something that's already tax advantaged by the government and then you've put the superpower of low-cost index-type investments in here, man, oh man, some magical stuff for your future self is going to be cooking in the background and this gets us really excited. Now, let's move on to the next bucket. So,

• 26:24Brian Preston?

  we're still, this is tax advantaged, tax-deferred. These are accounts that they do give you a deduction when you make the contribution. They do grow in a tax-deferred, meaning that every year as it's getting interest, as it's getting dividends, as it's getting capital appreciation, the government's not going to be taxing on it. But unfortunately, at some point in the future, usually your required minimum distribution age, age around 75, the government is going to start making you pull this money out to pay taxes. So, it's good, it's just not tax-free good like that, that first bucket was.

• 26:57Speaker 04

  So, the types of accounts that fall in here like traditional 401Ks, or traditional 403Bs, or traditional 457s, or traditional IRAs. If you're investing in one of those types of accounts, they're going to be in the tax-deferred bucket. And then, the third bucket, now this one is not tax advantaged in the same way that the other two are, but there still are some tax advantages to it. These are just regular old brokerage accounts. This is like an individual account, a joint account, maybe you have a stock account from work, or you have a trust account that you've established. These are all after-tax accounts that you can invest in, and they don't have the same age limit restrictions like some of the tax-free and tax-deferred buckets. So, you may be sitting there and say, okay,

• 27:39Speaker 04

  guys, you've told me where my options are, but how do I decide? How do I know which one makes the most sense for me to put the money into? Well, the reason we separated them into their different tax treatments is the way that you decide which one makes sense is actually dependent upon your tax situation, and that's how we recommend you go about deciding between pre-tax or Roth.

• 28:02Brian Preston?

  Yeah, this is one, look, without a doubt, most people, we love the Roth feature. But there's a group of you, we've seen the survey results on who is out there in the financial mutant audience, and a lot of you guys, you make a great income, so you're in higher tax brackets. If you're not paying attention to what tax bracket you're in with your savings and investment strategy, you might be making a mistake because there might be a better opportunity if you're in your peak earning years to where, and you retire early, maybe you could do Roth conversions and some other great planning opportunities. So that's why we've tried to put together some guidelines. Now, this is not an end-all, because there's going to be a lot of other factors that come in, but we have at least some good guidelines on how do you know, should you do in your

• 28:46Brian Preston?

  401K at work, or your 403B? Should you be pre-tax and take the deduction now, or should you do the tax-free Roth option? So here's what we've laid out. First of all, you've got to know, what is your combined marginal tax rate? But what is a marginal tax rate?

• 29:01Speaker 04

  Marginal tax rate is just the dollar, the tax rate that you pay on your next dollar of income. So when you look at your taxable income on your tax return, and you go to the tax table, and you see where that falls, that's going to be your marginal tax bracket. So if you take your federal marginal tax bracket, and you take your state marginal tax bracket, and you add them together, and the sum of those two is below 25%, you might be a great candidate for Roth contributions. You may want to consider that. If you add those two marginal tax brackets up, and you're somewhere between 25 and 30%, it gets a little more nuanced between should I do pre-tax, or should I do Roth? And you have to think about things like your other available account structure, and your unique timeline, and your unique goals.

• 29:45Speaker 04

  But if you are someone who is a higher income individual, and you look at your marginal federal rate, and your marginal state rate, and combined, they're greater than 30%, then there's a really good chance you ought to be doing pre-tax contributions. Because every dollar that you can save into that IRA, or into that 401K, or into that 403B, can save you 30 cents in taxes. You can think about it like a 30% imputed rate of return, and that is such an attractive benefit. It's really hard to make the decision to forego taking advantage of that today.

• 30:16Brian Preston?

  Now, look, just putting a little disclaimer out there. Obviously, there's factors that influence this. If you're somebody who's under 30 years of age, your age and the years, the decades of tax-free growth is going to obviously push that needle towards Roth, even if your tax bracket's going up. But then there's other people. I think about, we've had 60-something-year-olds who have come to us and said, "Hey, Brian, I know that I'm in a high tax bracket, but I'm also now thinking about for estate or legacy, and I want to pay it forward and give, what's the best type of asset for my beneficiaries to inherit and then continue to grow tax-free?" Well, there could be some Roth planning, even if somebody's in a higher tax bracket. But I still think that this tax efficiency, pre-tax versus Roth,

• 30:58Brian Preston?

  this is a great first step for you figuring out how you should navigate this when you're looking at it.

• 31:04Speaker 04

  All right, Brian. So now, let's move on to the next one. This one is an interesting one. When do I invest? And this is one, I think, that trips up most people.

• 31:14Brian Preston?

  It's the emotions.

• 31:15Speaker 04

  I think most people screw this up, and this might be the number-one question that most often gets answered incorrectly in our minds and prevents us from ultimately going on our wealth-building journey.

• 31:26Brian Preston?

  Yeah, us as humans, I gotta tell you, I love that critical-thinking element of the human brain that allows us to, we turn, you know, invented the wheel, discovered fire, and now here we are. We have artificial intelligence, all these other things of the law of accelerating returns that makes it so exciting to be an investor, to also be alive. But man, oh, man, can we come up with excuses that sidere our us from doing great things for ourselves? So a lot of times, we will say, let me just go ahead and tell you something that I see right now. We get calls from people saying, "Brian, is this really the right time to be investing? Because, did you see who's in office?" And by the way, it cuts both ways. I mean, I've had clients, every election cycle I've been through.

• 32:11Brian Preston?

  And that's why I always tell people, do not base your financial decisions based upon who you, which cable channel you're watching. If you're Fox News, CNN, MSNBC, they are Trying to keep your eyeballs and your ears, they don't necessarily care about your wallet and your purse. So be careful trying to make timing decisions or when you should invest based upon political thoughts.

• 32:36Speaker 04

  Yeah. So if you're asking the question, well, is there a benefit depending on who's in office relative to markets, we think that history is a great tutor. So we ought to look back at how have the markets performed during different segments of our, of our political environment. And when you look at this, going all the way back to the 1970s, you can see where we had Democratic presidents and you can see where we had Republican presidents and you can see where there were Congress that was Democrats and you can see where there's Congress of Republicans. And what you notice is that it is wildly consistent that the markets tend not to care a whole lot about who is in office and they tend to be pretty resilient no matter which party is in office. So when it comes time for you

• 33:20Speaker 04

  to make your investment decision and think about how you're going to go about building your wealth, should you consider who's in office when you make the decision to either invest or not invest? We say absolutely not.

• 33:33Brian Preston?

  Yeah. Don't let the political thoughts that you have, that might be a blind spot for you. So be careful on that because the markets, this is going to be a good thing, are very much nonpartisan. Okay. Here's the next thing. What if you're worried about what markets will or won't do? Here, let me give you some examples on this, Bo. If markets are at all time highs.

• 33:54Speaker 04

  Ooh, that must be scary.

• 33:56Brian Preston?

  People be like, I don't want to put a dollar in, you know, or any money into this investment because man, we're not buying at the top. I've always heard this saying of buy low, sell high. And here if the markets are all time high, I'm really screwing this up. Or what about if markets are literally getting their teeth kicked in? This seems like, why would I want to invest in something that's getting beat up right now? This seems like a bad idea too. Do you see how this cuts both ways?

• 34:18Speaker 04

  Yep.

• 34:18Brian Preston?

  If you're letting your emotions set when you invest, you're really kind of going to cloud up your judgment on how you're going to do this well.

• 34:27Speaker 04

  And if you don't believe that this can be significant, we want to walk you through a case study to kind of highlight how impactful this can be. So let's consider an investor. Let's consider panicking Pat. Panicking Pat has $10,000 initially that he wants to invest. And when he starts investing, in addition to that $10,000, he's going to invest $583 a month. He's just going to max out his Roth IRA and he's going to buy the S and P 500. So he's following most of what we say, buy an index, save consistently, begin building wealth. But whenever there's a down year, panicking Pat gets really, really nervous. And he says, you know what? I'm going to sell and I'm just going to wait for things to improve. So he sells after that down year and then he sits in cash, waiting for the market to recover.

• 35:12Speaker 04

  How many times have you heard this? Ooh, it's scary right now. It seems like the sky is falling. I'm just going to sit on the sidelines until I feel a little bit better about things. So that's investor number one, panicking Pat. But then we have old faithful investor number two, Manny the Mutant.

• 35:27Brian Preston?

  Manny the Mutant.

• 35:28Speaker 04

  This is what Manny says. Manny says, you know what? I'm going to do the same thing. I'm going to invest $10,000 initially and I'm going to max out my Roth IRA every year. I'm going to save $583 a month and I'm also going to buy the S and P 500, but I'm not going to try to time it. I'm just going to buy every single month. I'm not going to worry about what's going on in the market. I'm not going to worry about who's in my office. I'm just going to keep buying. Well, if both of these two investors were to invest from 1999 all the way through the end of 2024, Pat would have still accumulated $670,000. So that's awesome. Started with 10,000, maxed out a Roth, still got to almost three quarters of a million dollars.

• 36:11Speaker 04

  But when you compare that to Manny, who was consistent and stayed true to the strategy that he was implementing, he ends up with almost double that amount, 1.25 million dollars over the exact same timeframe.

• 36:26Brian Preston?

  I always tell people, why, if you could find out doing it the easy way, the lazy way is better, why make it hard on yourself? Because there's also a great historical slide that I always roll out when people are trying to tell me they figured out a better mousetrap on the timing. If you look at time in the market versus timing the market, look at, this is some research that I put this, this is ended as of 2023. So 1988 all the way through 2023, looking at the growth of $10,000 invested in the S and P 500. If you just stay in the market the entire time, that $10,000 is now worth over $400,000, $418,000. If you just miss the five best days. Two hundred and sixty-four.

• 37:08Speaker 04

  So, so five days from nineteen eighty-eight to twenty twenty-three, there's a lot of days in that timeframe, five days cost you two hundred thousand dollars.

• 37:16Brian Preston?

  You missed ten days, a hundred and ninety-one thousand. If you missed thirty days, a month out of all these decades, you missed just one month. Now, instead of it being over four hundred thousand, it's down to seventy-one thousand. If you missed the best fifty days, it's down to thirty-one thousand. Do you see how your emotions can literally betray you? Now, I know this is an extreme thing, and I know also the trolls will be like, what if you missed the worst days? Well, nobody has the potential. There's no way to say, I'm going to place the trade today to miss the worst day and then get right back in on the best. What we've seen is what you need to do to actually be successful is just have a plan that takes this all out. So, when you ask yourself, when do I invest?

• 38:01Brian Preston?

  The answer is easy if you want to be successful. Always be buying, A B B, baby.

• 38:07Speaker 04

  Always be buying, and you don't have to outsmart yourself. You don't have to make it any more complicated than that. All right, Brian, I'm sold. I'm out, I'm there, here I am. Now, let me answer the last question. Let me ask the last question. You've told me who should invest and what to invest in and where to invest and when to invest. What about the very last question? Now, how much should I invest?

• 38:33Brian Preston?

  Now, look, I've already kind of, I've laid out some breadcrumbs throughout today's show. If you're young and, and you feel like money is just short, just do something. Just absolutely do something. But for, because just getting the ball rolling is going to be the most important thing. But then, once you actually get it in there and you start investing, now I want you to understand a, a, a simple fact, and this is the breadcrumb I laid out earlier. Your savings rate is so much more important when you're starting out than even what you're investing in and the rate of return you're making. So, we try to tell people, let's, let's just get the ball rolling and then let's focus on what you can, can, can control, which is your savings rate.

• 39:14Speaker 04

  I love it. And we said, you want to see how powerful this is? You want to see this? In a real life example, again, let's take two investors. Let's take Sal the savant who starts his career making $50,000 a year. And let's assume that Sal gets a 3% annualized wage growth and is going to have a 10% savings rate. So going to be saving, but not going to work towards the 25% that we talk about. But Sal is a savant and Sal is an amazing stock picker. Because of that, Sal recognizes a 25% annualized rate of return. As a reminder, S and P 500, over the last something like 50, 60, 70 years is annualized like 11%, but Sal is better. Sal knows how to pick the winner.

• 39:58Speaker 04

  So Sal is going to make 25% every single year.

• 40:03Brian Preston?

  By the way, that's so unrealistic, but let's go ahead and just for the sake of education, this, let's let this assumption flow through.

• 40:10Speaker 04

  But now let's look at our second investor. Again, back to, back to Manny. Manny's also has a $50,000 starting wage, 3% annualized wage growth. But Manny says, you know what? I'm not just going to save 10%. I'm actually going to save 25% of my gross income for the future and I'm only going to make 10%. I'm going to have a well diversified portfolio, buying low cost index funds and I'm going to make 10%. Do you realize if you just took these two investors with Sal making 25% every single year for the first 10 years of them investing, Manny is out in front.

• 40:48Speaker 04

  It takes Sal 10 years of making 25% every single year to make up for and compensate for how much lower his savings rate was than Manny's. It's why we say all the time that your savings rate early on in your journey is exponentially more important and more valuable than your rate of return.

• 41:10Brian Preston?

  By the way, this is so, because we did this on the extreme on purpose.

• 41:14Speaker 04

  Sure.

• 41:15Brian Preston?

  Probably by year five or six, the SEC is going to show up at Sal's door and go, what inside information do you have? Because if you just look at active managers versus passive index investing, there's a reason that index investors outperform. I mean, it's in the 90 percentile plus. And then here's what those stats, because there's a human condition where we always have this overconfidence. We say, well, I'm going to go buy the investment that's 10, because 10% of the investments outperform the market. But then there's a research out there on Spiva and elsewhere, it says the consistency of the 10% is never the same investments. There's a lot of variation on what outperforms from year to year. So to

• 41:55Brian Preston?

  find an investor that can outperform for 10-plus years, it's just, it's an outlier. So you, that's why I would tell you, if you, end of the day, if you come to, how much should I save? Because every one of you is going to be a little different. You're going to have different goals, you're going to have different ages. But don't worry, we've still created a great deliverable and a resource for you. If you just go to moneyguy.com/resources. This now lets you lay over what's your age, what's the savings rate you're considering, and it will tell you how much of a replacement you could potentially have at retirement. So please, don't sleep on this. Go check out our How Much Should I Save? resource. So you can find out, is if you're in your twenties, maybe 15% is going to rocket and knock it

• 42:39Brian Preston?

  out of the park. But maybe you're 40 years of aging, you're just starting, you're going to say, okay, it looks like this 25%. I see why these guys landed on that as a savings, an aspirational savings rate. It looks like that is where the army of dollars needs to be, so they can work harder than I am with my back, my brain, and even my hands.

• 42:56Speaker 04

  That's the whole idea. Investing is this wonderful tool, where we can take some of our hard-earned dollars today, we can put them to work, and we can actually have our money. Work even harder than we do. It does not have to be complicated. It does not require a finance degree. It does not require a lot of mental energy. What it does require is a little bit of discipline and toning out the noise. And if you can start your investing journey today, it's a great chance that your future self will thank you.

• 43:26Brian Preston?

  So here's where we are. We have, there's so much content that gets you motivated. And yes, I think we checked the box on trying to get you motivated. But there's a lot of content that I feel like it's lacking on the how, the what, and the when, the where. We just loaded you up with every bit of that and we can do that. We give you all this free information and just so you know, it's consolidated at moneyguy.com/resources. But there's going to be some of you who catch this and you're saying, that's going to be great for my niece, my nephew, or even my grandkids. But my situation is even more complex than what these guys are showing. Don't worry. I guess that's the abundance cycle. We give you the basics so it creates the level of success that this thing turns your simple financial life. Success just naturally creates complexity.

• 44:10Brian Preston?

  And when you get to that point where you're trying to figure out, how do I do this the best way possible now that my life has gotten complex? That's the graduation point for the abundance cycle. And that's where we'll leave the lights on for you. That's where you can consider working with your own fee-only wealth management with one of our advisors and we'll be there for you. Because here's the key takeaway I want you to know. You can either own your financial life, or your financial life will own you. I'm your host, Brian Preston, Mr. Bo Hanson, Money Guy team, out.

• 44:38Speaker 04

  The Money Guy Show is hosted by Brian Preston and Bo Hanson. Brian and Bo are partners with Abound Wealth Management. Abound Wealth Management is a registered investment advisory firm regulated by the Securities and Exchange Commission in accordance and compliance with the securities laws and regulations. Abound Wealth Management does not render or offer to render personalized investment or tax advice through the Money Guy Show. The information provided is for informational purposes only, may not be suitable for all investors, and does not constitute financial, tax, investment, or legal advice. All investments involve a degree of risk, including the risk of loss.

• 45:11Speaker 01

  I don't know what I'm doing. Need a break. Forget it, I quit.

• 45:14Speaker 04

  Escape to Pluto TV.

• 45:16Speaker 02

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• 45:18Speaker 01

  Relax into the movies and shows you already know and love, all for free. Swing! Even our news is uplifting.

• 45:23Brian Preston?

  You stay classy, San Diego.

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