The Science Behind Building Wealth

Building wealth doesn’t have to feel like cracking a secret code. We unpack the three key sciences behind wealth building (behavioral, financial, and economic) and show how anyone can succeed with the right knowledge and habits. From overcoming fear of investing to avoiding high-interest debt and using the tax code to your advantage, we break it all down. 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. http://nordvpn.com/MONEYGUY 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

  Hey Spotify listeners. When you travel with American Airlines, you'll enjoy comfort and convenience at every altitude. Before takeoff, unwind in the Admirals Club Lounge with curated self-serve offerings of hearty bites and refreshments. In-flight, stay connected with high-speed Wi-Fi, sponsored by AT&T. Your journey is designed to feel easy from the moment you check in to the moment you arrive. No matter where you're going, American gets you there. Book now at aa.com.

• 0:27Speaker 01

  This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required. Compatibility and availability varies. 18+. [00:00:52]

• 0:52Brian Preston?

  Wealth building doesn't have to feel like you're deciphering a secret code. So why does everyone treat it like one?

• 0:58Speaker 03

  Brian, I am so excited to talk about this because far too many people see investing as like this rigged game. But today, we are going to flip the script because we want the journey to be clear and straightforward.

• 1:10Brian Preston?

  Exactly. Building wealth is actually a very simple science. If you know how to make the system work for you, and that's what we want to share with you today. So let's jump right in.

• 1:19Speaker 03

  When it comes to science, there are a couple of different sciences at play. And the first one is one I think a lot of people, Brian, have heard of, or at least are somewhat familiar with, and that's behavioral science.

• 1:30Brian Preston?

  Oh, this is the stuff of what you do and how that impacts you.

• 1:35Speaker 03

  This is the one thing, when you think about the different sciences at play, that you have the most control over. It's the one that you can actually influence, that you can actually impact. So it's why we want to start with behavioral science.

• 1:49Brian Preston?

  And this makes a lot of sense. If you have, understand the math of compounding and so forth, none of this matters if you're your own worst enemy. If you're working against yourself with all your decision-making. So that's why we got to make sure we get the behavior right first.

• 2:03Speaker 03

  So how do you do that? What are the things that you need to do if you want to positively impact it? Well, the first is you want to build- Good habits. We want you to be in the place and be in the posture that man, the things that I'm doing over and over, they are replicable and the things that I'm replicating are actually net positives for my financial life.

• 2:22Brian Preston?

  Now, I've, I've been around enough gurus. They tell you it takes 21 days to build a habit and 90 days for that actually to become a lifestyle. So how is this actually going to intersect with finances?

• 2:32Speaker 03

  Yeah. The thing that you need to do when it comes to the best habit you can build is simply living on less than you make. Whatever your paycheck is, whatever dollars you have coming in, you don't want to spend all those. You don't want to consume all those. You want to figure out, how do I have a lifestyle below that threshold so that I'm not just waiting every pay period for the ends to meet?

• 2:52Brian Preston?

  Now, this sounds a lot like the first ingredient of the three ingredients of wealth building, which is discipline. Without a doubt, when you say live on less than you make, this means that you have enough discipline in your life that you are letting some of that money turn into margin so it can be invested over time.

• 3:07Speaker 03

  And that margin is the actual thing that you use to begin building wealth, but you cannot have the margin. You won't build the margin without discipline. And yet, some people say, hey, you know what? I don't, I don't have a discipline problem. I understand on living on less than I make, but I'll tell you one thing I don't love is I don't love the idea of investing. So when you're thinking about behavioral science and what you can impact, one thing you have to do is you have to overcome the fear of investing. And I think a lot of people approach it and it seems like this foreign, frightening, scary thing.

• 3:42Brian Preston?

  Well, I hate that people have gotten this thought that investing is, is dangerous or scary. And, and look, I'm willing to share in the short term, it potentially could be. But I think if you hang out long enough, long-term, it's pretty amazing. And we have a great illustration. We always talk about the cycle of market emotions. And I just know about humans, we typically are our own worst enemy is that when we have peak opportunity, meaning markets are getting crushed, we get scared to death. When you have peak scary times, meaning you should be running the opposite way, we typically get greedy and we're all loading it up. So my cycle of market emotions. Is something you definitely need to understand when we're talking about behavioral science.

• 4:24Speaker 03

  Now, a lot of people don't realize that that cycle exists, that it's sort of this somewhat predictable pattern. In contrast to that, most folks think, or a lot of people when they begin investing, they think it's really like gambling. Fifty-five percent of Americans, according to Magnify Money, believe that investing is just as risky as gambling. So showing up in your Roth IRA or in your 401K is no different than showing up at the casino, and that just could not be further from the truth.

• 4:54Brian Preston?

  Well, I grew up in a house where I think that this, we resembled this.

• 4:57Speaker 03

  You saw this, yeah.

• 4:58Brian Preston?

  My parents thought investing was risky to the point that their biggest investment was buying CDs. And I think about what a crazy thing, because this is, falls under that behavioral understanding is that what seems risky in the short term might actually be your biggest resource in the long term.

• 5:17Speaker 03

  Because like saving in CDs, you're not going to keep up with them.

• 5:20Brian Preston?

  And by the way, buying CDs is risky in the long term. So it's just this inversion of the reality, just because you perceive this as risky or gambling. We gotta get people over this barrier.

• 5:33Speaker 03

  And while you may think that keeping money on the sidelines and not investing is the less risky behavior, there are some real costs associated with this. You've seen this illustration before, but we want to show you how valuable time in the market is, how costly it can be if you sit on the sidelines. Do you realize if you just had $10,000 invested from 1988 until 2023, so this is a long period of time, nearly 40 years that we're covering here, if you would have just invested that $10,000 at the beginning of the period and left it invested, by the time you got to 2023, that $10,000 had turned into almost $420,000. I want you to remember that number, 420.

• 6:18Brian Preston?

  Well, this is why you don't have to be the best investor, because I think a lot of people think, well, I gotta buy low, sell high, and that's the only way to win. No, we're just telling you, just be there. Be there for the good days, be there for the bad days, and we're nerdy enough, by the The way if you see this because you just said it's close to 40 years. We actually this is close to 13,000 days.

• 6:36Speaker 03

  Oh, it's huge.

• 6:37Brian Preston?

  Think about it. So let's talk about out of 13,000 days. What is this a few days? But what happens if you miss five, 10, 30, and even 50 days?

• 6:46Speaker 03

  If all you did was miss the five best performing market days from 1988 until 2023, rather than that 10,000 turning into 420, that 10,000 only turns into about 264,000.

• 6:59Brian Preston?

  Guttted it with five days.

• 7:00Speaker 03

  Five days. If you just missed the 10 best days instead of 420,000, you end up with about 191,000.

• 7:06Brian Preston?

  We've lost over half of it just by 10 days.

• 7:08Speaker 03

  If you miss the best 30 days, so a single month, the best 30 days in the market, that 10,000 rather than turning into 420,000 dollars only turns into 71,000 dollars.

• 7:20Brian Preston?

  I mean, and the big crescendo 50 days, which is not that many more. I mean, like I said, out of 13,000 days, close to 13,000 days, we're talking about a rounding error, but we could take that 417,000 all the way down to 32,000. And we all know, none of us have the sports almanac, none of us have the flux capacitor. So we couldn't do this if we wanted to. So just go ahead and save yourself the calories, the mental horsepower, and just know that you're going to be committed to stay into this market.

• 7:50Speaker 03

  So how do you do it? How do you combat that? Well, that's the other good habit that you can build. And Brian, you say this all the time. The key is always be buying.

• 7:59Brian Preston?

  A B B, baby. Always be buying. That's for sure.

• 8:02Speaker 03

  This is the idea that no matter whether the market is going up, whether the market is going down, you're putting your dollars to work. And the beauty in this is that it's a win-win. If you're investing every single month and the market is going up, then the money you invested last month has made money. That's great. If you're investing every month and the market goes down, then the money you're investing this month is getting in at a lower level than you got in last month. So if you can reframe your mindset to always be buying, you're already going to set yourself up on the winning side because we know that eight out of 10 years, the market goes up. It's only down about two years in a decade. So if you can get. Your money to work. Odds are over the long term, you're going to end up in a better place.

• 8:44Brian Preston?

  Yeah, I like that it lets you gamify this essentially, just as you shared. This is a great tool for volatility because it's going to let you affirm and feel like you're checking the box on taking advantage as a financial mutant of the bad times, but then it's also going to be stick with it enough. So that the next point that we're trying to bring forward is stay the course. If you're not staying consistent with your investing, you're missing out tremendously.

• 9:09Speaker 03

  Yeah, all these other habits were things that you need to do, right? So you need to live on less than you make. You need to overcome the fear of investing and actually invest. You need to always be buying. Staying the course is kind of the other side of that coin. Hey, what do I not need to do? I don't need to deviate from my plan or change my plans. I need to recognize that if I can just stay true to myself, if I can just stay grounded, this thing works. And Brian, you say this all the time, that if you're ever getting certain or you're ever unclear or something makes you feel nervous, there's a really good thing you can do to help move in the right direction.

• 9:47Brian Preston?

  When in doubt, zoom out. Look, I've already shared it. My parents thought when the stock market was risky, it was gambling. And without a doubt, if you look at this in the short term, it looks like this is chaos. I mean, if you look at annual rates of return of just like the S and P 500 or 6040 portfolio, if you were trying to even add some diversification, it looks like you're like, why would I do this? Do you see what emotions this would probably just bring up in me? Why would anybody stay the course if you look at all these random dots that are on the screen?

• 10:20Speaker 03

  For those of you out there in podcast land, what we're showing is investment returns from the early seventies all the way through the end of 2024 on an annual one-year basis. And it looks like a wild scatter plot. There is no rhyme or reason. There are dots that are above 0%, there are dots as high as 30%, and then there are dots that are below. But there is no rhyme or reason. It looks completely random, but like you said.

• 10:45Brian Preston?

  When in doubt, zoom out.

• 10:46Speaker 03

  When you zoom out and you say, okay, how do these returns look over? 20 year rolling period. Well, now it's incredibly consistent. It doesn't look so sporadic or so random. You can see it is pretty clearly centered somewhere around that 10 to 11% long-term rate of return that dare I say over this time period, looks fairly predictable.

• 11:08Brian Preston?

  I mean, I know in the intro, I talked about decoder. This looks like a decoder. I mean, if you can win in doubt, zoom out, you all of a sudden that chaos becomes something that has purpose, that seems somewhat consistent. There's just a lot of ahas that should be popping off in your brain. Definitely behavior wise, when you see this type of illustration.

• 11:31Speaker 03

  But you may be thinking, well, yeah, but I've just got the world's worst luck. I understand this, but man, what if I start investing? You know, that was, this is the seventies and the eighties and the nineties. This was personal computer and this was internet. Look at stock returns over the last 20 years. If you pick any year from 2004 until 2024, and you just said, hey, if I started investing this year, and then we're just looking at the S and P 500, what would my rate of return been one year in the future, two years in the future, three years in the future, so on and so forth. And what you can see is there is not a five-year period in this 20-year period, that if you would have started investing, you would have had a negative rate of return. Even if you started investing in 2007, right before the

• 12:14Speaker 03

  great recession, if you can zoom out and give it enough time, after five years, you are back to making money, you are back in the green, you are back moving in the right direction. And this assumes that you weren't someone who was already buying through it. If you were buying through this, you were positive much earlier on. So if you understand how markets work and how investing works, you can set yourself up for financial success.

• 12:38Brian Preston?

  This is when people say, how long should you plan on having your money invested to even consider investing in the stock market or diversified portfolio? There's a reason. It's the science and the math of this calculation of the five years of all. That's why if you're trying to save up for a down payment or an engagement ring, and that's going to be in the next two years. To three years, you're not investing that money and this chart is the perfect illustration. And it also brings to focus that things over the long term, they just, it gets, it's not random anymore. It really does streamline nicely when you see how close this all aligns. If you can just stay the course and think like a long-term investor.

• 13:21Speaker 03

  So we're talking about the science behind wealth building and we kind of hit first, what you do with your money. That's the behavioral science. Well, the second science we want to look at is financial science. And this is quite literally what your money does. When you put your money to work, what actually happens to it? And so you might be like, oh, great, great, great. We're going to talk about growing and building and all this stuff. But before you get there, you have to beware.

• 13:48Brian Preston?

  Well, I, I think we just came out of the behavioral science, which was important. But before we even, because I want to talk about the math, but the first thing is we have to avoid the trap. And this is still somewhat behavioral. That's why I think it's important to be the first thing. So many people, when they first start on their journey, without realizing the power of what their money could become, they fall into high interest debt thinking, because it's the bridge that feels like it solves all of your problems. You don't have enough income?

• 14:16Speaker 03

  No problem.

• 14:17Brian Preston?

  We'll get you some debt. It will be the bridge that gets you there. So you can fake it until you actually make it. The problem is, is you are digging a hole that you will not be able to get out of.

• 14:26Speaker 03

  And this is so important. When we think about what you should do with your next dollar, or think about how you should approach making your financial decisions, high interest debt and getting rid of it, getting it off your balance sheet is very early on. Step number three, literally, it is before you start doing any investing outside of getting your free employer match. That is how powerful it is. And so the question becomes, okay, why? Why is this so powerful? Well, if you think about this, we know that compounding interest can be amazing when it's working for us. But when it works against us, I don't think we often recognize the gravity of how bad it can be. And we just said, if you took $1 and you made a reasonable rate of return of 8%

• 15:10Speaker 03

  Over a decade, that $1 would double, which is great. That $1 would turn into $2. That's awesome. If you fall into the trap of high interest debt and instead of making 8% on your money, you're paying someone else 22% annualized on a credit card, rather than your $1 doubling, you actually go 5X in the hole. You actually lose $5 in interest over that same time period. High interest debt is literally a hole that the deeper you dig, the faster you dig, the harder it is to get out of. You cannot play in those waters.

• 15:47Brian Preston?

  Well, what makes me sad is not only is there the spread of opportunity costs of what could have been, and now what you're paying in all this high interest debt, but it's also the lost time.

• 15:57Speaker 03

  That's right.

• 15:57Brian Preston?

  And so that's why, Bo, I think it's really important, and we ought to go ahead and lay out some ground rules. What actually classifies as high interest debt?

• 16:04Speaker 03

  Yeah, so we have a few like rules of thumbs here because we don't believe that all debts are created equal, and we're going to talk about in a moment. We don't even think that all debts are bad. Some debts are okay, but if we're thinking about the financial order of operations, we're trying to follow well what qualifies as high interest debt. So let's start with student loans, which a lot of people out there in the country are facing right now. Our thought is, based on the opportunity cost of dollars, that if you're someone in your twenties and your student loans are above 6%, you may want to consider prepaying those. If you're someone in your thirties and your student loans are above 5%, you may want to consider prepaying those. And by the time you get to your forties, if your student loans are above 4%, now's the time that you want to start knocking those out.

• 16:47Brian Preston?

  Now, we've also, people who are familiar with our content know we have the 23/8 rule. But, you know, look, we're in a post-pandemic, post-inflationary period. Interest rates are much higher than they've been back during the 90s and 2000s. So people are now saying, what about those consumption interest rates like on car loans? This one's a little unique because I'll tell you, some of these interest rates. Kind of, they make the hair on my arms stand up a little bit. They make me have a bad taste in my mouth, but we're on purpose sharing these higher rates because they're just a moment in time. If you're falling 23.

• 17:21Speaker 03

  That's right. You have to fall inside 23.

• 17:24Brian Preston?

  You're only going to be having this for three years. And we just know that that's that the time is so valuable that we want to let you know that it's okay that you have some of these things. So you like, you can get to your job with your automobile, but also be building wealth in the background. So that's why in your twenties, we say 10% on, on, on, on car loans, 9% in the thirties, 8% for your forties, credit card debt. Now, this is going to blow people's minds. We think, look, credit card use is okay, but credit card debt, no way, including, because I know a lot of financial mutants, you get caught up in thinking, I'll just play this transfer, the balance to all these 0% credit cards. That is a trap. It's also not worth the hassle factor. I'm just telling you, if you're going

• 18:08Brian Preston?

  to be a financial mutant, you have to figure out the value of your time. You have to figure out the hassle factor. I don't want you doing any of those reindeer games whatsoever. We consider credit card debt to be paid off monthly. That don't play into that game of trying to figure out if you can maximize here and there. It's a trap waiting for you to fall into it and get yourself in a pickle of a situation.

• 18:29Speaker 03

  This may be aggressive, but playing with carrying a balance on a credit card is literally playing Russian roulette with your financial life. Just because that one time did not derail you, did not bury you, does not mean that the next time won't. That's why we say credit card debt, no way. Do not carry a balance. So this shows how devastating high interest comp, how, how high interest, compound interest working against you can be devastating. Let's talk about what you do do. When it comes to the financial science. Let's talk, let's talk about what you do do. The financial science side of it would suggest you want to get compound interest on your side. You don't want it working against you. You want it working for you.

• 19:13Brian Preston?

  Well, how could we talk about, because I'm glad we're moved away from the trap of debt. Now let's get to what I get excited about, the wealth multiple. Guys, this is kind of one of those key concept. If you know what we talk about, I get excited about my morrow moment where I talked about my economics teacher in high school talking about if I could invest a hundred dollars a month, I would be a millionaire. The only way that's possible is that when people are billionaires of time, when you're young, you are literally a billionaire of time. Your dollar does so much more. You might be jealous of your bosses or people a few years ahead of you. They are jealous of your time. So don't sleep on this because a 20 year old, a dollar has the potential to become 88 times over by the time of your time.

• 19:54Brian Preston?

  But, but here's the part that it's somewhat mean, but it's the reality. When you're 30, that same dollar has potential to become 23. Still incredible. I mean, 23 times. But you realize we just cut that in four. I mean, that's, that for you 20 year olds, we just made it, it's, it's, it's so much harder. It's four times harder for the 30 year old to do what you did as a 20 year old. For a 40 year old, seven times. That's still incredible. You go seven times, whatever it is, but now we've made building, well, 10 times harder compared to the 20 year old who starts. So guys, when you understand this concept of how powerful and valuable your time is, you'll think about saving and investing differently. You'll also think about how you consume differently.

• 20:38Brian Preston?

  Now, when you see people, all your neighbors and friends driving around the finance cars that are out for 84 months, you will have a distaste for that because you know what they could have, would have, should have done with every dollar in their army of dollar bills.

• 20:52Speaker 03

  The science behind this, the underpinning of this, the way that the wealth multiplier works is not rocket science. This is simple compound interest. It's this idea that I can have my money make money. And then the money that my money makes can make money. And then even that money can make money. If I have a hundred dollars and I make 10%, I now have a hundred and $10. That's $10 in gains. Well, now if I take all 110 of those dollars and I make another 10%, now I have $121. I have $11 in gains. And the bigger the numbers get, the bigger the numbers get. But I know a lot of people out there saying, well, okay, guys, I get it. $1 turns into 88 and I understand compound interest.

• 21:33Speaker 03

  But walk me through this in like a real life example. Walk me through like, like, why should I be excited about this? And so this is for every person out there who's ever maxed out a Roth IRA. Wants to max out a Roth IRA or trying to decide if they should max out a Roth IRA. We just want to show you how compelling this can be. So let's assume that you're someone, you're going to max out your Roth at $7,000 a year. And you can earn 8% on average, you're going to do this for the next 30 plus years. Right? So all we're going to do, max out Roth IRA, $7,000 a year. Right? Not super, super complicated. In the beginning, and Brian, you talk about some beginning, it might not be super, super exciting. You realize that it will take you almost nine years, a little over eight and a half years,

• 22:17Speaker 03

  to where now your money earns more in a year than you save in a year. So up until this point, you've been doing a lot of the heavy lifting.

• 22:26Brian Preston?

  This is something that really bothers me and I want to go ahead and warn you about this on the front end. Cause you're going to be in the first 10 years, maybe many of you are just like I am, you know, and Beau is. We know that 80% of millionaires are first generation. So you're hearing a lot of these concepts for the first time. And a lot of you will go on this journey with us, you're going to get excited when you find out about the wealth multiplier. And realize we are using, we're just showing this leveled out. The sad thing is when you invest, returns don't come in nice little eight to 10% rates of return every year. It's going to come in a jagged way at you. You go one year, you're going to make 20%. Next year, you might lose 7%. But over time, it's going to turn into somewhere between eight to 11%. But here's what I want to warn you about.

• 23:11Brian Preston?

  The first 10 years, a lot of you are going to quit if you don't have this knowledge. I want you to go into this with your eyes open because what's going to happen in that first 10 years is you'll likely experience and live through your first and second recession. There will be two downturns in every decade typically. You will see market volatility. And when you see that your portfolio is going up and down, and then you find out that your money only doubled in that 10 years, a lot of you are like, what are we doing? And that's why, Beau, it's so important, I want you to set the stage for, it's not the 10 years.

• 23:44Speaker 03

  That's right.

• 23:45Brian Preston?

  You have to stick past 10 years. You have to stake 15, 20, and we're going to show you the why. Because many people don't give you the actual illustration or the result of why they have to do it. But I just want to tell you, eyes wide open, do not quit in the first 10 years. You will feel every desire, because this is hard to save and invest. You will feel every desire to quit because the messy middle, the kids, everything's going to be happening. Don't do it because here's the payoff.

• 24:12Speaker 00

  Hey Spotify listeners. When you travel with American Airlines, you'll enjoy comfort and convenience at every altitude. Before takeoff, unwind in the Admirals Club Lounge with curated self-serve offerings of hearty bites and refreshments. In flight, stay connected with high-speed Wi-Fi. Sponsored by AT&T. Your journey is designed to feel easy from the moment you check in to the moment you arrive. No matter where you're going, American gets you there. Book now at aa.com.

• 24:39Speaker 01

  This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required. Compatibility and availability varies 18 plus.

• 25:03Speaker 04

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• 25:32Speaker 03

  Together we naan. So 8.75 years for your money to make more in a year than you save in a year. But by the time you get to 15.8, almost 16 years, you have now hit that tipping point to where now the growth in your portfolio is larger than the dollars you've saved. Your money at this point has now worked harder than you. More of your account balance after 16 years is earnings than it was contributions.

• 25:58Brian Preston?

  Now wait a minute, I want to make sure people hear this. After 15 years, getting close to 16 years, you will have made more money from the portfolio than you even put in in contributions.

• 26:07Speaker 03

  That's exactly right.

• 26:08Brian Preston?

  Do you see how this is exciting? Meanwhile, back just a few years earlier, the first nine to 10 years.

• 26:14Speaker 03

  You were doing heavy lifting.

• 26:15Brian Preston?

  You just doubled your original investment, which is hard, that's not sexy, but you have to do it. The stick-with-it-ness has to be there for this all to work.

• 26:25Speaker 03

  And then, as you move to the end of the journey, if you do this for 32 years, do you recognize, again, this is just saving $7,000 a year, earning 8%? That in the 32nd year, your money now earns more every single month than you save in a year. It's growing by $7,000 a month at that point, even though you're only saving $7,000 a year.

• 26:48Brian Preston?

  This is why it gets exciting. This is why, you know, we know the typical millionaire happens in their late 40s, typically after 27 years of diligent saving and investing. And when you get to my, I'm past that point, by the way. I'm in my 50s. And what's amazing is when you live in an area where, like we live, and you're around people like I am, we talk about this, and I talk to my peers, and we're like, can you just believe what the portfolio made last quarter? And I can't tell you which dollar I invested, when and where, is why this got to be so big. It was just those consistent, small decisions that kept stacking on top of each other and built this great, big, beautiful tomorrow.

• 27:30Brian Preston?

  But if I'd have quit anywhere in that journey, I would have never gotten to that 20-plus years to start seeing this aha. So that's why your behavior comes into play. The science of actually what the math is doing for you comes into play. Bo, now we ought to talk about what's the science of the economy? Because is this something that can continue to keep going forward, or are best days behind us?

• 27:54Speaker 03

  Yeah, it's really interesting. We talk about behaviors, what you can do, and financial science, what your money does. But now let's talk about the system in which we operate. Because there are a lot of people out there that thinks, oh, the system's rigged against me. And oh, I just, this is only for the other people. And I would actually flip that. I would argue that if you're an investor and you're committed to long-term investing, the system presently is actually rigged for you. And if you don't believe me, just think about some of the structures that we have in place. Now, you're going to think when I say this, oh, these guys have lost it. With the tax system, we have a very unique tax system in this country. And whether you like it or dislike it, one of the unique things about it is the way that

• 28:38Speaker 03

  investment accounts, the way that growth opportunity accounts are treated is different from a tax perspective. And if you understand that, you can actually manipulate that to your advantage over the long term.

• 28:51Brian Preston?

  Well, yeah, without a doubt, we talk about this as the three bucket strategy. We're talking about your after-tax investments, your tax-free, which are your Roth investments, your pre-tax. This can be, because look, we know that pre-tax, this is this type of assets that you want to put like your bonds and your fixed income.

• 29:08Speaker 03

  That's right.

• 29:08Brian Preston?

  Everything's going to be taxes, ordinary income. You ought to know that. That's a variable you want to understand so you can put what needs to go in those accounts. Tax-free Roth, this is where you stick it to the man legally and build your seven-figure millionaire status without any taxes in the future. So you want to put growth-type assets in those type of holdings, but you don't want to get too risky because you can't take losses on any of these type of investments. And then the after-tax, this is where we want to build the bridge or other investment assets that you want easy access to, but also take advantage of the tax favor. And a lot of you are hearing this and like, man, that is a lot to take in, in one or two sentences. The good news is you don't have to figure this out. We've already done this for you.

• 29:50Brian Preston?

  The science is cooked and built into the Financial Order of Operations. It is very much set up to take advantage of every one of these tax buckets for you. We've done the heavy lift.

• 30:00Speaker 03

  So if you want to know more about the Financial Order of Operations, go to learn.moneypieguy.com. You can check that out and do the deep dive. So obviously, the tax system is structured, the way the accounts are set up is structured in a way that you can take advantage of. But even taking it a step further, okay, guys, I get it. I get the buckets, but what do I do inside the bucket? Well, even there, the system has now morphed over the last decades that now you even have a huge advantage in your corner that you get to take advantage of index funds. And as a reminder, just like quick vocabulary lesson, an index fund is just a specific fund that tracks some sort of market. Index, meaning it tries to mimic that segment of the market. So most often people think about like

• 30:43Speaker 03

  the S and P 500 is just the 500 largest publicly traded companies in the United States. Well, rather than me having to go out and buy all 500 of those individual stocks, I can buy a single ETF or a single mutual fund. And I can get exposure to all 500 of those companies and they are incredibly low cost to operate. So I don't have to figure out. What do I go buy and when do I buy and when do I sell it? I don't have to go try to beat the market. Index funds provide me an opportunity where I just get to be the market.

• 31:17Brian Preston?

  Yeah, don't try to beat it. Just be the market preached. That is where this thing is at. And then that ties into it because a lot of you. Remember that whole analogy, this is gambling. When people see this next illustration, I think it just kind of puts to bed. It is so much better to be a bull market investor than even the fear. It's almost like, you know, if you watch Monsters, Inc. And other things and you're worried about the boogeyman under the bed that you sleep in at night in the dark is scary. When you understand the actual real, how dangerous is a bear market? You quickly realize, no, it's better to be a long-term investors. The fear I have about those downturns is probably much more overplayed. And I even have tools that can fight this. I'll have diversification. I'm going to have, we'll get into all that.

• 32:02Brian Preston?

  Why you should consider when your life gets complicated, we'll have a solution. But both show them why being an investor, especially bull market investing is so much better than bear markets.

• 32:13Speaker 03

  Yeah, if you think about the market as a whole, the S and P 500 from 1942 to 2024. So we're talking about like 80 ish years around here and you just look at, okay, how long did bull markets last compared to how long bear markets last? And you can see bull markets last a whole lot longer. And you think, okay, well, how severe are the bear markets? How bad is the drawdown? Relative to the uptick in the bull markets. And what you can see is that bull markets are not only much bigger and much longer and much better.

• 32:48Speaker 03

  And much more frequent, if you were looking at this and thinking that the stock market was gambling and thinking that the stock market is risky, you would say, man, I'm going to put my money on the bull market. I'm going to buy into that side of it. And that's what our entire system is built on. That's why we want you to always be buying because even when the market is scary or uncertain or down, when you compare that to what it looks like when it's up and not scary, it is a very, very, very different picture.

• 33:17Brian Preston?

  Now, look, and we, we put up all the disclosures because we never try to, to, to push things or skew things because we really do try to be as transparent as possible. But a lot of people are saying, but past performance is not indicative of future. And that's true. We don't know. And that's, that's in all the disclosures. But there is something that I always get to think about. It's this, once I discovered this, I was like, oh my gosh, this makes sense. Is that you hear about the, the, the law of accelerating returns. This is the thought, this, just like I tell you, your money doesn't grow in a linear fashion. We, we as humans, we think in linear terms. We think that it's always going to be one, two, three, four, five, six, seven, you know, and so forth. And it takes forever to stuff to build. And it's just not that way.

• 33:58Brian Preston?

  It typically goes more like two, four, 16, and then goodness gracious, this thing's getting big. And that's the way it works with investing too. And we put up an illustration called, you know, kind of make this point about law of accelerating returns. Look how slow it took for innovation to occur for mankind from just doing that first papyrus and getting paper and printing and then the printing press. And then we get into telescope. We get into the first battery and then, I mean, how crazy is it? We, the first car, the first airplane, and then before you know it, we have commercial industries built on this stuff. And now we're in the infancy, maybe we're not even in the infancy because it seems to be picking up so much speed so much faster.

• 34:42Brian Preston?

  Artificial intelligence, this thing, every time you think you've got the world of technology and innovation figured out, the next thing comes over the horizon that revolutionizes. And I'm old enough, you know, because I'm in that greatest generation, Gen X, where we were analog. And now we're digital and now we're even moving on and I've seen so much just in my lifetime. This is not slowing talent. So that's why when it's not a zero sum game where you, you know, in order for you to win, somebody has to lose. The pie is actually getting bigger and that is the good news that gets exciting. Now, look, we might build this thing up to where we build something that takes us out, but at least financially, we are going to be able to make money as this law of accelerating returns keeps going forward.

• 35:27Speaker 03

  As you say, maybe say, okay, guys, I get that. I hear you. I understand that. But I know in fact, the market is scary because I've experienced it. I was investing in 2008. I was investing during COVID. I was invested fourth quarter 2018. I was invested during the dot com bubble. I know that the market does have periods where it gets scary and we're not going to fight you on that. That is true. But here's what we know about the way that the science of the market works, that the way the market works is when there's a downturn, when the market moves in a negative direction, when we hit bear market territory, oftentimes there is a V shaped recovery. And that V shape means that as soon as it's the bottom, it doesn't linger around down there. It doesn't hang down there. As soon as it's that lower point, it catapults up and starts

• 36:10Speaker 03

  moving in a different direction. We actually have the math to back this. We said, let's look at the S and P 500 and look at every bear market since 1950, right? So how bad was it? And every if you average out all the bear markets we have, the average loss is about 35% from the height from the peak to the trough and the average length is about 13.8 months. So just over a year. But did you know that after the bottom of that bear market, on average, in the first month of recovery, the market recovered about 15%? In the first three months, it was about 21%. The first six months, almost 28%. In the first year, on average, after a bear market, now mind you, average bear market downturn

• 36:54Speaker 03

  was 35% in the first year following that lowest point, market made back 43 and a half percent. And by the time you get 24 months out from the bottom, on average, it's up about 63%. So even though. The market might get scary and it might be uncomfortable and it might not look exactly the way you want it to look. It changes, it changes quickly and it changes in a very positive

• 37:19Brian Preston?

  Well, and people say, well, what's the why? How can this V-shaped recoveries? And it's typically because of intrinsic value is that and information travels so fast now with modern communication and transparency and other things is that you'll see markets get where they get disconnected, meaning just like in 2008, you find out that the buildings that Apple owns without debt are worth more than what the stock was trading at, not even taking into account all the intellectual property and all the other stuff. You go, what in the world is going on? This is the greatest opportunity ever. Why would I not buy this? Well, the reason nobody wants to buy it is because us as emotional creatures, we are disconnected from the actual value. So one day people wake up originally and go, wait a minute, this wasn't as bad as I thought.

• 38:04Brian Preston?

  And you see the buyers line up and then you see this slingshot of recovery, the reversion to the mean or the, we talk about that rubber band method where

• 38:12Speaker 03

  Pluck effect.

• 38:13Brian Preston?

  Velocity, the pluck effect of how bad it is going down is probably building energy for how good it's going to be coming back. But a lot of you are going, but guys, if I lost 35% when I'm 65 years old, that could be catastrophic. You're exactly right. This is why the science is, it's not just all equities all the time. You gotta get your diversification right. You gotta have somebody who is managing what is going on with my investments so that I don't experience 100% of the volatility because that's going to break me emotionally. And that's why I tell you guys, we can love on you as much as we want, give you all the free advice and really tell you in a transparent way how things work is because we know that even though building wealth is incredibly simple,

• 38:57Brian Preston?

  it's far from easy. Cause there's a lot of things. And also what you're gonna find is when you reach your seven-figure status, you're gonna be like, oh my God, this is the first time I've ever done this. And now my life went from simple to more and more complexity. How do I do this right? We know that we're going to be able to be, leave the porch light on for you and help you do this in the best way possible. Done this for hundreds, soon to be thousands of times with all the clients that we're working with all across the country. And that's why you don't have to be in this alone. And that's why we can do the abundance cycle where it can give you all this free advice. Cause we know that just the recipe is so good that it will create the success that will create this complexity, which is a good thing. It is a good thing, but you don't have to do this alone.

• 39:41Brian Preston?

  You will be the CEO of a multiple seven-figure entity. If you think about what the value of your net worth and all of your investable assets is going to be, don't take the risk if you don't, you don't have to do this alone. Consider working with us and guys, let that abundance cycle fulfill. If you're, by the way, if you're at the beginning of your journey and you haven't gone to moneyguy.com/resources, let us love on you. Take all the free advice that we've given you. If you're in the middle of that journey, we've got tools, we've got hubs, we've got resources that'll accelerate. And of course my financial mutants that are into that close to seven-figure status and beyond, we'd love for you to consider paying it forward, letting us be the Johnny Appleseed of personal finance so that you can live your best life.

• 40:24Brian Preston?

  I'm your host, Brian Preston, Mr. Bo Hanson, Money Guy team, out.

• 40:29Speaker 03

  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.

• 41:01Speaker 04

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• 41:07Speaker 06

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• 41:10Speaker 04

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• 41:27Speaker 04

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• 41:30Speaker 06

  Together we naan.

• 41:33Speaker 07

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