RPF0611-QA_on_Dollar_Cost_Averaging_Roth_IRAs_for_children_Bitcoin_as_an_Asset_Protection_Tool_Getting_into_the_Financial_Planning_Industry
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00:00:30.620 | Today on Radical Personal Finance, it's live Q&A.
00:00:33.620 | ♪
00:00:49.640 | Welcome to Radical Personal Finance,
00:00:50.940 | a show dedicated to providing you with the knowledge,
00:00:52.580 | skills, insight, and encouragement you need
00:00:54.640 | to live a rich and meaningful life now
00:00:56.320 | while building a plan for financial freedom
00:00:57.880 | in 10 years or less.
00:00:59.380 | My name is Joshua, I am your host,
00:01:00.780 | and today we feature a live Q&A show.
00:01:03.560 | Open to the public all this week,
00:01:05.720 | beginning today, Monday, December 17,
00:01:07.860 | continuing on through Friday, December 21.
00:01:10.800 | You know what?
00:01:12.060 | Let's just call it a Christmas present.
00:01:13.160 | Merry Christmas to you.
00:01:14.400 | ♪
00:01:21.840 | All during this week of episodes on the podcast here,
00:01:24.440 | we are featuring live Q&A.
00:01:26.380 | They'll probably not all be released
00:01:27.980 | between the 17th and the 21st,
00:01:29.580 | but they will all be recorded between the 17th and the 21st.
00:01:32.480 | And if you would like to join for a live Q&A call,
00:01:34.880 | you can do that each day at noon Eastern time
00:01:37.760 | on Monday, December 17th through Friday, December 21
00:01:40.520 | by calling into this phone number, 561-440-7362.
00:01:45.100 | Again, 561-440-7362.
00:01:48.700 | That phone number will get you in at noon on Eastern time
00:01:51.700 | for the recording of the show.
00:01:52.700 | We begin with Ben in Minnesota.
00:01:54.000 | Ben, welcome to the show.
00:01:54.840 | How can I serve you today, sir?
00:01:56.840 | -Hi, Josh. Thanks for having me.
00:01:58.740 | Hey, my question is, as I'm currently actively investing
00:02:02.640 | in my 401(k)
00:02:04.140 | and have recently started doing some Roth IRAs,
00:02:07.720 | my question would be, do you ever consider
00:02:11.460 | or advise stockpiling money in, say, a Roth IRA
00:02:16.060 | and waiting for a major market downturn to deploy that money,
00:02:20.860 | or would your advice be just to deploy it every month
00:02:25.440 | when I put the funds in the account?
00:02:29.340 | -Would having cash reserves benefit you,
00:02:33.380 | or do you have other cash reserves?
00:02:36.320 | -So, I do have a six-month emergency fund.
00:02:41.120 | -Okay. -It's not in any
00:02:42.460 | retirement account.
00:02:44.060 | -So, the statistically correct answer -- How old are you?
00:02:47.560 | -I'm 25. -Okay.
00:02:48.900 | So, the academically correct answer is this --
00:02:52.800 | you shouldn't try to time the market.
00:02:55.100 | That's what all of the experts say.
00:02:57.200 | That is what all of the research says,
00:02:58.780 | and I have no compelling arguments to go against that.
00:03:01.980 | So, the academically correct answer that I should give you
00:03:04.440 | is you should just put the money in each month as you earn it.
00:03:09.240 | And so, that's the best course of action for you.
00:03:12.260 | And let me explain the reasons for it.
00:03:13.820 | Especially given your age, the chances of your ability --
00:03:18.260 | the chances of your being able to successfully predict
00:03:20.620 | what happens in the coming months,
00:03:22.760 | in the coming years, unless you're actively involved
00:03:26.300 | in the business of investing, are very low.
00:03:27.900 | Most people don't know.
00:03:29.200 | They aren't going to be able to judge what's happening.
00:03:31.700 | And so, you just dollar-cost average the money in.
00:03:35.100 | Each month, you invest a set amount,
00:03:37.180 | and when the markets are high, then you buy fewer shares.
00:03:41.740 | When the markets are low, you buy more shares.
00:03:43.220 | It basically works that way.
00:03:44.620 | So, in general, when you're in the accumulation phase,
00:03:46.880 | you should just simply invest each month on an ongoing basis.
00:03:49.880 | Now, I want to give two caveats to that.
00:03:52.020 | One of the great benefits of a Roth IRA, and for clarity --
00:03:55.620 | so, that certainly applies to your 401(k) --
00:03:58.500 | because it's too hard with a 401(k)
00:04:00.800 | to change those amounts each month.
00:04:04.060 | And so, with your 401(k),
00:04:05.200 | you should just put the money in regularly every month.
00:04:08.200 | And the only exception to that plan
00:04:09.840 | would be if you are choosing to front-load your 401(k)
00:04:12.700 | with your contributions early in the year
00:04:14.820 | to max it out early in the year.
00:04:16.080 | But let's skip that for now.
00:04:17.940 | So, with a Roth IRA, however, I think there are two caveats.
00:04:21.760 | One, one of the benefits of the Roth IRA
00:04:24.620 | is that you can take the money out,
00:04:27.020 | the contributions out, and use them for other things.
00:04:30.660 | And so, if you don't have a lot of other money,
00:04:33.400 | you don't have a lot of other investments,
00:04:35.140 | you don't have other forms of cash,
00:04:37.540 | savings, emergency fund, things like that,
00:04:40.240 | then I think the Roth IRA is a really nice place
00:04:42.100 | for some of those funds.
00:04:43.540 | Because if you put in your contribution each year,
00:04:45.580 | your $5,000, and you just keep it there,
00:04:48.080 | not invest it in a stock market fund,
00:04:50.720 | then if you needed to use the money for something,
00:04:53.520 | some kind of opportunity,
00:04:55.620 | young people often do things like buy houses
00:04:57.780 | or move to get a better job,
00:04:59.460 | or some kind of emergency,
00:05:00.820 | you lost a job, you needed money,
00:05:02.520 | anything that you might need emergency funds for,
00:05:06.100 | then a Roth IRA is a really nice place
00:05:08.000 | to take that money out,
00:05:08.840 | as long as you're only taking your contributions out.
00:05:11.340 | And so, if you were going to use it in that way,
00:05:14.440 | then you wouldn't want it all to be invested.
00:05:16.680 | And so, I think that that's not a bad use of the money.
00:05:20.440 | And the second thing is,
00:05:21.380 | I think that when we're young,
00:05:23.320 | there are chances for there to be substantial market declines
00:05:27.520 | within a reasonable future.
00:05:29.820 | Now, you will have to look at a market to say,
00:05:33.020 | "Well, where are we?
00:05:33.860 | Are we overvalued?
00:05:34.700 | Are we undervalued?"
00:05:35.700 | But there's a good chance,
00:05:36.760 | in our investing lifetimes, being young,
00:05:39.440 | that there will be major corrections,
00:05:42.740 | major recession, major changes.
00:05:46.340 | And it'd be really nice to have a big stockpile of cash
00:05:49.440 | to be able to take advantage of that
00:05:51.180 | when there's blood in the streets.
00:05:53.140 | So, if any of that applies to you,
00:05:56.020 | then I think you could make an argument
00:05:57.980 | for keeping the money on the sideline in a Roth IRA.
00:06:00.820 | So, two answers.
00:06:02.260 | One, academically,
00:06:03.220 | you're supposed to just dollar-cost average the money in,
00:06:05.740 | because all the data shows that you and I are stupid
00:06:08.180 | and aren't able to predict reliably
00:06:10.020 | when the market will correct and by how much it corrects.
00:06:12.420 | But I think there's a little bit of an adjustment
00:06:14.300 | that can be useful
00:06:16.300 | with regard to our own practical personal finances.
00:06:19.620 | - Perfect, thanks so much.
00:06:22.900 | I really appreciate your time.
00:06:23.980 | - My pleasure.
00:06:24.820 | At the moment, that seems to be the only call on the line.
00:06:28.060 | The next call that was lined up dropped off.
00:06:30.100 | So, I'm gonna answer a couple of questions
00:06:31.460 | that have come into my email inbox.
00:06:33.860 | Tim writes in, says, "Joshua, I enjoy your podcasts
00:06:35.580 | and your credit card debt lectures are helping me
00:06:37.020 | on my personal path to financial freedom.
00:06:39.200 | I would like your opinion on setting up custodial Roth IRAs
00:06:41.740 | for our children.
00:06:43.220 | Maybe we start a modeling company
00:06:44.540 | just to contribute to them.
00:06:45.660 | I'm not sure that I would want my child to have a job
00:06:47.740 | so early in life.
00:06:48.580 | Just throwing ideas at you.
00:06:49.420 | Thank you for all that you do and keep up the good work."
00:06:51.700 | Regards, Tim.
00:06:53.140 | Well, Tim, I think that Roth IRAs for children
00:06:55.820 | are a wonderful idea.
00:06:57.740 | So, let me set a little bit of background information
00:06:59.840 | for those who are new to the concept.
00:07:01.980 | If a child has an earned income,
00:07:06.080 | that child is eligible to establish a Roth IRA.
00:07:11.960 | Now, generally, Roth IRAs are some of the most
00:07:15.960 | well-loved retirement accounts
00:07:18.040 | because when you pay the income tax now,
00:07:22.440 | you can let the money grow into the long-term for retirement
00:07:26.440 | and not pay income tax when the money is distributed.
00:07:29.600 | And so, if somebody invests $10,000 into a Roth IRA today
00:07:34.600 | and then the money grows to be $100,000,
00:07:36.960 | they can take out the $100,000 income tax-free
00:07:40.600 | when they choose to end retirement.
00:07:43.400 | Roth IRAs have a number of other things
00:07:45.360 | that make them really, really useful.
00:07:46.720 | As I just mentioned,
00:07:47.720 | you can take out your contributions, income tax-free.
00:07:51.080 | So, if you need the money back out,
00:07:52.600 | you can get it out, which is useful,
00:07:54.640 | and there's no penalty tax
00:07:55.880 | on those taking the contributions out.
00:07:58.920 | One of the other big benefits of Roth IRAs
00:08:00.520 | is they don't have any required minimum distributions.
00:08:03.240 | So, unlike traditional IRAs,
00:08:05.640 | which require you to start taking money out
00:08:07.400 | at the age of 70 and a half,
00:08:08.680 | a Roth IRA can be left alone until death.
00:08:13.240 | And then, even on death, under current tax law,
00:08:15.960 | that Roth IRA could be rolled over
00:08:17.920 | to the beneficiary of the account
00:08:20.000 | under what's called a stretch IRA,
00:08:21.960 | and the distributions can be stretched out
00:08:24.320 | over another lifetime,
00:08:25.800 | possibly your child or your grandchild's grandchildren.
00:08:29.640 | And so, we could get a tremendous tax savings here
00:08:33.240 | with the use of a Roth IRA.
00:08:36.000 | The downside to Roth IRAs for most adults
00:08:39.080 | is you pay the income tax currently,
00:08:42.200 | and that's why we have to do an analysis
00:08:43.800 | between contributing to a Roth IRA
00:08:46.040 | or contributing to a traditional IRA.
00:08:48.320 | And it's my own opinion that most people
00:08:51.240 | will have a hard time having a higher income in retirement
00:08:54.440 | than they do while working.
00:08:55.840 | So, in general, most people who are working,
00:08:57.920 | unless they're earning a small amount,
00:08:59.820 | most people should move in the direction
00:09:02.160 | of a traditional 401(k) contribution
00:09:04.240 | or perhaps a traditional IRA contribution
00:09:06.800 | rather than a Roth IRA.
00:09:08.240 | Of course, we need to be careful
00:09:09.200 | with the flexibility of the Roth IRA.
00:09:11.000 | That distinction is mostly important
00:09:13.480 | for the difference between contributing
00:09:14.480 | to a traditional 401(k) or a Roth 401(k).
00:09:18.120 | However, for a child, generally,
00:09:19.640 | children aren't going to be earning enough money
00:09:22.280 | where they're going to owe any income tax on the money.
00:09:25.720 | It's not unusual for a child
00:09:27.000 | to be able to earn several thousand dollars per year,
00:09:29.840 | and at that rate,
00:09:30.920 | they're not going to be paying any income tax.
00:09:33.040 | Now, even that problem is solved.
00:09:35.040 | And the benefits of this type of account
00:09:36.640 | are really, really incredible.
00:09:38.800 | Let's do a little math for scenario.
00:09:40.800 | Let's say that your child puts $5,000 this year
00:09:43.460 | into a Roth IRA, and they're five years old.
00:09:46.060 | Well, fast forward,
00:09:47.120 | let's give it a time horizon of, say, 80 years.
00:09:49.880 | So, an 80-year time horizon.
00:09:52.240 | Let's say that they invest the money aggressively,
00:09:54.760 | and net of fees, 'cause there's no taxes here,
00:09:56.900 | net of fees, let's say they earn 8% on the money.
00:09:59.760 | And they start with,
00:10:01.800 | well, let's start them with $5,000 today,
00:10:04.320 | and no further contributions to the account.
00:10:07.100 | Well, in 80 years,
00:10:08.520 | that $5,000 contribution could be worth $2,359,000
00:10:13.520 | under those assumptions.
00:10:17.120 | 80 years invested at 8% is $2.3 million.
00:10:21.840 | And that $2.3 million, under current tax law,
00:10:25.000 | would be received income tax-free.
00:10:27.680 | Now, here's what's cool about it.
00:10:29.080 | Let's say that your child never spent that money themselves,
00:10:32.800 | and they just left the money in the Roth IRA,
00:10:35.120 | and pretend you had an additional 80 years
00:10:37.720 | for that initial $5,000 contribution.
00:10:41.080 | So, let's change our timeframe now to 160 years.
00:10:44.360 | And theoretically, you could be talking about $1.1 billion
00:10:49.000 | with that simple $5,000 contribution
00:10:52.720 | if those assumptions continued.
00:10:54.620 | Now, there are a bunch of really big assumptions
00:10:56.960 | in that number.
00:10:57.780 | First of all, the investment rate of return.
00:11:00.800 | Number two would be that tax codes stay the same.
00:11:04.160 | It's hard to imagine that tax law will stay the same
00:11:07.120 | for such an extended period of time.
00:11:09.400 | There's a good bet that by that time,
00:11:11.440 | the US American empire will have dissolved,
00:11:13.400 | and there'd be something entirely new.
00:11:14.680 | That'd be my guess, but who knows?
00:11:16.560 | You never know about these things.
00:11:18.520 | So, the concept is there,
00:11:19.720 | and it's a really powerful concept
00:11:21.360 | for those who can take advantage of it.
00:11:24.120 | Well, how does a child make a Roth IRA contribution?
00:11:26.800 | The child has to have wages.
00:11:28.800 | They have to have earned income
00:11:30.620 | because your ability to contribute to a Roth IRA
00:11:32.780 | is based on your earned income.
00:11:35.220 | That means they can't be the beneficiary
00:11:37.040 | of an account that's paying them money.
00:11:39.260 | They can't be the beneficiary of a trust
00:11:40.780 | that's paying them money.
00:11:41.900 | They have to have earned income,
00:11:43.380 | and then that income has to be reported on a tax return.
00:11:46.420 | So, what most parents will do
00:11:51.420 | is they will gift their child an amount equivalent
00:11:55.080 | to their earned income.
00:11:58.180 | So, let's say a child can put together an income
00:12:00.120 | of three or four or $5,000 in a year.
00:12:03.420 | In 2019, the Roth IRA contribution limits
00:12:06.420 | are gonna go up to 6,000 bucks
00:12:08.500 | for anyone under 50 and a half.
00:12:10.620 | So, at 6,000 bucks, let's say they earn $6,000.
00:12:14.220 | Well, if you as a parent can give your child $6,000,
00:12:18.600 | then you can do two things.
00:12:19.900 | They earn the $6,000, and you give them $6,000.
00:12:22.860 | Now, they have $12,000.
00:12:24.780 | They contribute $6,000 into their Roth IRA,
00:12:28.980 | and that allows them to have that account start to grow,
00:12:31.660 | start to build, and it is going to be available
00:12:34.740 | for them in the future,
00:12:35.860 | and then they spend the other $6,000
00:12:38.580 | to do whatever has been agreed upon between you and them.
00:12:41.420 | It's one of the more powerful solutions.
00:12:43.300 | And even as we've talked about asset protection,
00:12:45.140 | that account is protected from the claims of their creditors
00:12:47.360 | under their local state law.
00:12:48.940 | Some states better than others, but that's useful.
00:12:52.060 | It's flexible, and it has great tax benefits.
00:12:55.420 | So now the problem is this.
00:12:56.620 | How do you get the five or $6,000 into the account?
00:13:00.400 | You gotta have the child earn wages.
00:13:02.620 | And here's where the trouble is,
00:13:04.280 | because how do you actually get wages
00:13:07.340 | for a one-year-old child?
00:13:09.000 | What can a one-year-old child actually do
00:13:12.660 | that could earn them wages?
00:13:15.100 | And that's where Tim mentions modeling.
00:13:19.980 | It's probably one of the very few things
00:13:22.540 | that you could imagine a one-year-old doing
00:13:24.360 | and getting wages for is modeling.
00:13:27.220 | So I don't know exactly how to do this for a one-year-old.
00:13:30.340 | Let's talk about modeling.
00:13:31.260 | Is modeling legitimate?
00:13:32.460 | I think so.
00:13:33.300 | Of course, there are models everywhere,
00:13:34.460 | child models everywhere.
00:13:35.980 | But remember, you're gonna have to actually
00:13:38.180 | have the child earn money.
00:13:39.360 | So it's not enough just to set up a modeling company.
00:13:42.340 | They have to actually get income from the modeling company,
00:13:45.620 | which means actually selling modeling contracts
00:13:48.340 | or signing business in some way.
00:13:51.260 | So you have to actually get income
00:13:53.660 | into the modeling company.
00:13:55.500 | And here at Radical Personal Finance,
00:13:57.300 | we try to stay away from the shady stuff,
00:13:59.580 | try to stay away from the backhanded deals
00:14:01.540 | where you go to a friend and offer them money
00:14:04.740 | to hire your child as a model.
00:14:05.980 | There's no need for that.
00:14:08.500 | And so modeling is about the only thing
00:14:10.060 | that a one-year-old could conceivably do,
00:14:12.220 | at least that I have come up with.
00:14:14.140 | But still, you have to actually legitimately come up
00:14:17.020 | with clients for that child.
00:14:19.140 | Now, I'm not aware of this area ever actually being
00:14:23.340 | driven very hard by the IRS.
00:14:26.660 | So it's probably a little bit looser than some other areas.
00:14:29.660 | The biggest concern by the IRS usually involves
00:14:32.760 | those who have their own business hiring their children.
00:14:35.400 | And usually the concern is not the child's
00:14:38.100 | Roth IRA contribution, usually the concern
00:14:40.740 | is the deduction on behalf of the business.
00:14:42.880 | So if you hire your children in your business,
00:14:45.460 | you wanna make sure that you keep good books and records
00:14:47.500 | about their activities.
00:14:48.780 | You don't turn around and pay them $100 an hour
00:14:51.700 | for stuffing envelopes.
00:14:53.100 | You pay them a reasonable wage
00:14:54.980 | that you would have to pay anybody for stuffing envelopes,
00:14:57.520 | and then you keep records on the number of hours
00:14:59.620 | that your child works.
00:15:00.500 | You have them fill out and submit a time card,
00:15:02.260 | and you keep good books and records
00:15:03.860 | if you want that deduction to stand
00:15:06.100 | under the scrutiny of an audit.
00:15:07.500 | But even so, I'm not aware of any IRS scrutiny
00:15:11.060 | of these Roth IRA contributions,
00:15:12.860 | but it's still worth in your best interest to do it right.
00:15:15.940 | So in summary, these plans are a wonderful solution
00:15:20.780 | for transferring money from a high taxpayer
00:15:24.300 | to a low taxpayer, and setting something up
00:15:26.660 | that's really, really good for children.
00:15:28.420 | I think all parents and grandparents
00:15:30.620 | should think about what can be done.
00:15:33.220 | And I think that Roth IRAs should be considered
00:15:37.420 | by anybody who has earned income.
00:15:40.640 | And you should look around within your family
00:15:42.540 | and your friends, and you should consider what can be done.
00:15:45.740 | How can we use an earned income
00:15:47.540 | and make sure that Roth IRA contributions are made?
00:15:50.300 | If, for example, if you have a family member that you trust,
00:15:52.620 | let's say that you have a parent or a grandparent yourself,
00:15:56.260 | and you can't, and let's speak to Tim.
00:15:58.320 | Tim, here's an idea.
00:15:59.160 | So pause for a moment.
00:16:01.940 | First, if you can figure out how to pay money
00:16:04.040 | to your children, do it.
00:16:05.860 | And then that helps them to have the earned income.
00:16:08.540 | And I think that's a really good idea.
00:16:10.300 | If you're self-employed, hire your children.
00:16:12.420 | Help your children to get businesses, get jobs.
00:16:15.420 | And I think it's also,
00:16:17.620 | I don't think a one-year-old necessarily
00:16:19.020 | needs to be put on the factory line,
00:16:20.860 | but I think it's really important for a seven-year-old,
00:16:22.780 | an eight-year-old, a nine-year-old,
00:16:24.020 | and a 10-year-old to earn income.
00:16:25.700 | And so even if that means
00:16:26.980 | you start a little side business yourself,
00:16:29.220 | and you take on some clients mowing lawns,
00:16:31.440 | and they start to work with you,
00:16:33.260 | doing the raking or trimming the hedges
00:16:35.140 | or whatever those things are so they can earn money,
00:16:37.300 | that's really important for them to learn how to work
00:16:39.380 | and also to create that earned income.
00:16:41.060 | Now, let's deal with a harder problem.
00:16:42.940 | Let's say you can't contribute that money
00:16:45.360 | to your child's Roth IRA.
00:16:47.020 | Here's something that's good.
00:16:48.100 | It's not as great, it's not the best, but it's still good.
00:16:51.460 | Look around in your family tree
00:16:52.780 | for a family member with earned income
00:16:55.780 | where that earned income is not currently being used
00:16:58.420 | for making Roth IRA contributions.
00:17:00.860 | So let's say that you have a grandparent,
00:17:02.740 | that the child has a grandparent, you have a parent.
00:17:05.260 | And this can work out really beautifully sometimes,
00:17:08.440 | even in the phase of life that a grandparent might be.
00:17:11.100 | It's not unusual for a 50-year-old
00:17:13.220 | or a 60-year-old to be a grandparent.
00:17:15.380 | And if that grandparent can establish their own Roth IRA,
00:17:20.180 | but then have it earmarked for the child,
00:17:22.680 | with the child as a beneficiary,
00:17:25.940 | then now that grandparent can get, say,
00:17:28.820 | potentially 30, 40, maybe 50 years of investing done
00:17:32.680 | in that account, and then the child
00:17:35.880 | can be the beneficiary of it.
00:17:37.460 | So if you're looking to fund an account
00:17:39.020 | for your brand new baby, you're not gonna be able
00:17:40.980 | to come up with earned income to be able to do it then.
00:17:43.780 | So until you can get earned income,
00:17:45.040 | you gotta go for another plan.
00:17:46.500 | So my suggestion is go to your parents,
00:17:48.460 | and if you trust your parents,
00:17:50.100 | make a deal with your parents.
00:17:51.260 | Say, "Listen, Dad, Mom, you're over the age of 50,
00:17:54.260 | "so therefore I can give you 2019 $7,000."
00:17:58.260 | And just make your parents a $7,000 gift.
00:18:00.660 | Remember, that's a non-taxable gift.
00:18:05.740 | There's no tax consequences there.
00:18:07.460 | Anybody can give anybody else $7,000
00:18:09.660 | without any records being created.
00:18:11.740 | Give your parents a $7,000 gift,
00:18:14.140 | and then have your parents open a Roth IRA for themselves,
00:18:19.140 | and then have them designate one of the children
00:18:22.740 | or as the beneficiary of the account.
00:18:26.540 | Now, this will give you a good start on the tax benefits,
00:18:31.280 | because you'll have tax-free contributions and buildup
00:18:35.840 | until the date of your parents' death.
00:18:38.520 | And then at that point in time,
00:18:40.800 | the Roth IRA can be turned into a stretch IRA,
00:18:43.760 | and those distributions can be made
00:18:45.480 | over the expected lifespan of the child.
00:18:47.420 | That's really, really good.
00:18:49.200 | The only risk here is that you don't have any control
00:18:53.000 | of the assets.
00:18:54.280 | So in this case, you still have your parents
00:18:57.240 | will have control of the account.
00:18:59.440 | So if you don't trust your dad or your mom,
00:19:02.360 | remember, they could just,
00:19:03.840 | when you give them the $7,000 gift,
00:19:05.240 | they could drain the Roth IRA
00:19:06.920 | and go and spend the money on themselves.
00:19:11.840 | But as long as you have a trustworthy relationship there,
00:19:14.480 | then things will be good.
00:19:15.880 | And then you have to think also about
00:19:18.080 | how are those accounts protected
00:19:21.000 | from the claims of your parents' creditors,
00:19:23.320 | and that's where everything we've been talking about
00:19:25.000 | with an asset protection case here would be important.
00:19:27.560 | So you'd wanna understand,
00:19:28.600 | let's say that your parents go bankrupt,
00:19:30.360 | or let's say that your parents die and have a lot of debt.
00:19:32.880 | How will those assets be treated by the creditors?
00:19:35.360 | In general, because that Roth IRA
00:19:37.840 | has the beneficiary designation,
00:19:39.680 | it will be able to pass simply to the parent's beneficiary,
00:19:42.200 | and in most states, it will have some form
00:19:44.720 | of asset protection on the account.
00:19:46.840 | So I think this is a fairly safe approach.
00:19:49.120 | Not perfect, not bulletproof, you have to trust your parents,
00:19:51.820 | but most parents, most grandparents
00:19:53.560 | are not gonna raid their kids' Roth IRA accounts.
00:19:56.440 | So this is very useful.
00:19:57.840 | And always remember that,
00:19:58.880 | when you have to fund one of these accounts,
00:20:01.400 | you may not be able to contribute.
00:20:02.720 | For example, your income might exceed the Roth IRA limits,
00:20:06.040 | but your parents might be able to contribute,
00:20:08.200 | as long as they have earned income,
00:20:09.640 | or an uncle might be able to contribute,
00:20:11.680 | or a family member, et cetera.
00:20:13.720 | So whenever you're trying to get money into an account,
00:20:16.200 | a Roth IRA account, an educational savings account,
00:20:18.760 | a 529 account, just look around the family tree
00:20:21.800 | and see where it might be able to be done.
00:20:26.000 | 529 accounts are another obvious example.
00:20:27.840 | There are many wealthy parents
00:20:29.160 | who can just simply give the contributions
00:20:31.880 | to their own parents, and then their own parents
00:20:33.880 | will establish the 529 account
00:20:35.200 | for the benefits of the children.
00:20:37.600 | 100% legal, perfectly reasonable, simple and easy to do,
00:20:42.080 | and with the exceptions of the risks that I pointed out,
00:20:44.320 | I think that goes a long way towards solving your problem,
00:20:46.760 | and doesn't leave you sitting in front of an IRS auditor
00:20:49.360 | trying to defend the idea
00:20:51.480 | that your one-year-old deserves $100 an hour
00:20:53.840 | for stuffing envelopes.
00:20:55.760 | That's fine at six, that's not at one.
00:20:57.620 | So hopefully that'll get you through the first few years
00:20:59.280 | until your child can have their own earned income.
00:21:01.400 | And remember also,
00:21:02.240 | those ideas are not exclusive one to another.
00:21:04.680 | You can gift your child an amount of money
00:21:07.940 | equal to their earned income
00:21:09.360 | so that they can make Roth IRA contributions,
00:21:12.000 | and then you can also gift your parents an amount of money
00:21:16.540 | equal to the Roth IRA contribution limits
00:21:18.680 | so that your parents can contribute to a Roth IRA
00:21:21.560 | for the benefit of their children.
00:21:23.020 | Now, I don't think the tax law is gonna stay the same
00:21:25.000 | as this, but think of if, this is the concept,
00:21:29.880 | meaning I think the tax laws will change at some point,
00:21:32.080 | and you won't be able to do this into perpetuity.
00:21:34.080 | But if each grandparent invested for 40 years,
00:21:36.800 | and then when they died,
00:21:37.880 | they left that account to their grandchild,
00:21:40.160 | there's a lot of tax-free growth and buildup
00:21:42.880 | that can happen in those accounts.
00:21:44.720 | Now, finally, you could take that,
00:21:46.200 | and you could go even beyond, open up a checkbook LLC,
00:21:48.840 | have coordinated investing among their IRA accounts.
00:21:52.080 | Those of you who are in that world and kind of sophisticated
00:21:54.440 | you could search into that, but that's enough.
00:21:56.680 | Even if you just put it in stocks, it should work out well.
00:22:00.440 | Next question comes in from Brett, Brett writes in and says,
00:22:02.560 | "Joshua, I recently discovered your podcast,
00:22:04.200 | "and I've really been enjoying your latest series
00:22:05.620 | "on asset protection.
00:22:07.160 | "As part of your deep dive,
00:22:08.160 | "would you mind looking into the role Bitcoin could play
00:22:10.120 | "in regards to asset protection?
00:22:11.960 | "After listening to your podcast,
00:22:13.280 | "I thought that a perfectly logical option
00:22:14.980 | "would be to liquidate all non-exempt attachable assets,
00:22:17.780 | "source Bitcoin from an OTC desk,
00:22:19.780 | "and self-custody in a hardware wallet.
00:22:21.920 | "There's a learning curve and some technical challenges,
00:22:23.780 | "but I'm wondering what the legal ramifications
00:22:25.400 | "of taking an action like that might be.
00:22:27.400 | "The benefits appear hard to ignore.
00:22:29.240 | "Something to think about.
00:22:30.080 | "Thanks for a great podcast, Brett."
00:22:32.080 | I thought this was a really interesting question.
00:22:34.400 | Now at the core of the question,
00:22:36.320 | it's simply a matter of secrecy.
00:22:38.800 | The question is, can I use tools
00:22:41.280 | such as the modern cryptocurrency tools,
00:22:45.200 | can I use those tools to generate secrecy around my actions?
00:22:49.860 | Now if you were to go back a few decades,
00:22:51.800 | you would find that secrecy was much easier to find
00:22:55.740 | in your banking affairs.
00:22:57.540 | You had the whole idea and concept
00:22:59.860 | of a numbered bank account, a numbered Swiss bank account.
00:23:03.260 | You know, this idea, and it was real,
00:23:05.900 | that somehow maybe a Swiss banker
00:23:07.620 | might show up at your house
00:23:08.760 | and you hand over a briefcase full of cash,
00:23:11.420 | and then they go and put that in your account,
00:23:13.000 | and there's no way to trace the money.
00:23:15.740 | Unfortunately in the modern era,
00:23:17.580 | bank secrecy seems virtually impossible to find.
00:23:22.520 | There've been a number of really problematic issues,
00:23:24.920 | and I'm particularly bitter about this,
00:23:27.140 | which you hear in the tone of voice,
00:23:29.320 | but the first major wrecking ball
00:23:32.080 | that happened to bank secrecy was the Patriot Act.
00:23:34.560 | In the wake of the September 11, 2001 attacks
00:23:37.680 | against the United States,
00:23:38.600 | the United States government passed
00:23:39.840 | the so-called Patriot Act.
00:23:41.680 | And I consider this one of the worst things
00:23:46.480 | I ever in my life supported.
00:23:48.380 | I was a fool in those days,
00:23:49.900 | and I kind of had this idea, rah, rah, patriot, blah, blah,
00:23:52.420 | blah, and I didn't know what was in it,
00:23:54.380 | and I didn't listen to anybody
00:23:55.380 | who talked about how awful it was.
00:23:57.100 | And today I'm just so embarrassed of that
00:23:59.500 | because Patriot Act is one of the worst pieces
00:24:01.580 | of legislation that has ever been passed
00:24:03.540 | in the United States of America.
00:24:04.940 | Because basically what it did was it caused
00:24:07.820 | the US government to enroll or enlist
00:24:11.620 | or to hire without pay the entire financial industry
00:24:16.440 | to be unpaid spies for the US government.
00:24:19.660 | So when I became a financial advisor,
00:24:21.260 | I was trained on the know your customer laws
00:24:23.980 | and all of the anti-money laundering laws, et cetera.
00:24:27.020 | And so basically the US government, again,
00:24:29.420 | recruited anybody in the financial industry
00:24:31.260 | and forces everyone who is in the financial industry
00:24:34.180 | to work as unpaid spies for the US government.
00:24:37.900 | It got worse in 2010 with the Foreign Account
00:24:41.820 | Tax Compliance Act that was passed, FATCA,
00:24:44.220 | where now not only did the US government require
00:24:46.760 | all the banks and financial institutions
00:24:48.720 | and insurance companies in the United States
00:24:51.300 | to be their unpaid spies,
00:24:52.480 | but now the US government forces all global bankers
00:24:56.180 | who wish to do extensive business within the United States
00:24:58.960 | to be their unpaid spies.
00:25:01.120 | And so all bankers are required around the world
00:25:04.100 | to find out somebody's country of origin,
00:25:06.560 | where they're from, and if that person is a US citizen,
00:25:09.740 | then those bankers are required to send
00:25:12.480 | to the US government all of the information
00:25:15.180 | about the accounts that are held by that US citizen,
00:25:18.540 | and then all of the transactions
00:25:19.880 | and the information in those accounts.
00:25:21.520 | And this was one of the problems
00:25:22.720 | where it became very difficult
00:25:23.960 | to open an offshore bank account,
00:25:25.300 | because many banks, rightly so, said,
00:25:27.640 | "Listen, the cost of complying with this law
00:25:30.240 | "is utterly ridiculous.
00:25:31.500 | "We're not gonna do your dirty work for you without pay."
00:25:34.680 | And they just simply stopped accepting US citizens
00:25:37.460 | as their customers.
00:25:38.440 | Many US citizens lost their accounts,
00:25:41.000 | or basically had their accounts closed,
00:25:43.040 | and the bank said, "Come get your money.
00:25:44.180 | "We're done with you."
00:25:45.280 | And it became much harder for US citizens around the world
00:25:47.840 | to open their bank accounts, open bank accounts.
00:25:51.820 | Now, I find that entire thing unfortunate,
00:25:55.400 | but the problem is there is, as best I can determine,
00:25:58.320 | zero public support for changing any of those laws.
00:26:02.240 | All a US elected representative has to do
00:26:04.700 | is wave the flag of terrorism or safety
00:26:07.760 | and/or money laundering, or we gotta fight the drug war,
00:26:10.320 | and people will give up every bit of their civil liberties
00:26:13.200 | and just happily trade it all in for some esoteric idea
00:26:16.920 | that somehow we're besting the drug war.
00:26:19.560 | It's absurd, but that's the world we live in,
00:26:21.280 | so bitter rant over.
00:26:23.480 | Now, in the modern world, what do you do?
00:26:25.440 | It's very tough, if not impossible,
00:26:27.320 | to open a purely, actually secret foreign bank account,
00:26:32.320 | but yet the world of cryptocurrency
00:26:35.360 | does offer some really intriguing opportunities here,
00:26:38.800 | and that's what Brett's talking about.
00:26:40.360 | And in essence, he's profiled a way to purchase Bitcoin
00:26:45.360 | with an anonymity, and then simply you can hold it
00:26:50.880 | in a physical hardware wallet
00:26:52.880 | that is designed simply to hold the Bitcoin.
00:26:55.120 | And so the idea is you're not doing business
00:26:57.040 | within the banking system.
00:26:58.480 | As long as you can make that transfer
00:27:00.180 | into the cryptocurrency system
00:27:01.920 | in an anonymous and private way,
00:27:04.000 | then now you have all your assets held secretly.
00:27:07.800 | That's the basis of his idea.
00:27:10.400 | So let's talk about that.
00:27:12.420 | Is secrecy valuable?
00:27:15.040 | Absolutely, yes.
00:27:16.800 | As I've discussed, secrecy is a very useful primary defense
00:27:20.600 | in asset protection planning.
00:27:22.840 | In bringing privacy and secrecy
00:27:25.200 | around your financial affairs will protect you massively
00:27:29.720 | from the claims of your creditors.
00:27:34.000 | It really will, because it will help you to be,
00:27:36.720 | no one will know your wealth.
00:27:37.760 | It helps you to be a smaller target.
00:27:40.200 | So is secrecy valuable?
00:27:42.580 | Is secrecy legal?
00:27:44.160 | Yes, as long as you don't falsify information,
00:27:48.280 | and that's where Bitcoin
00:27:49.600 | or other cryptocurrency transactions could be helpful,
00:27:52.960 | because the idea or concept behind Bitcoin
00:27:55.440 | is you can verify the transaction externally,
00:27:58.480 | so you don't have to prove who you are
00:28:01.120 | to a certain institution.
00:28:02.420 | It is possible to buy Bitcoin anonymously, secretly.
00:28:06.000 | And have you broken any laws?
00:28:07.400 | No, there's no laws broken by doing that secretly.
00:28:11.640 | So the legal answer to Brett's question here,
00:28:14.620 | when he says, "I'm wondering what the legal ramifications
00:28:16.840 | "of taking an action like that might be,"
00:28:18.980 | there are no legal ramifications for taking that action.
00:28:23.340 | There are some significant potential risks,
00:28:28.060 | such as Bitcoin price collapsing,
00:28:30.340 | or such as Bitcoin becoming technologically outdated,
00:28:35.720 | what's the word that means?
00:28:37.080 | Obsolete, technologically obsolete.
00:28:39.280 | Bitcoin in many ways is technologically obsolete
00:28:42.160 | compared to some of the newer cryptocurrencies
00:28:44.240 | that have been developed to solve specific problems.
00:28:46.560 | Who knows how this market will shake out?
00:28:48.740 | That's a hard question to answer,
00:28:51.840 | and I don't wanna get down that sidetrack,
00:28:54.560 | but there's no legal problem for doing what you've done.
00:28:57.940 | You can put your assets into anything,
00:28:59.480 | just like you can take all of your assets out of the bank,
00:29:02.300 | you can go and buy lottery tickets with them.
00:29:04.600 | It's perfectly legal to do, lot of risk there.
00:29:07.720 | Now, where does the legal problem come in?
00:29:10.600 | Well, first, of course, if you don't pay taxes
00:29:15.600 | on your Bitcoin transactions,
00:29:18.680 | now you have a significant potential problem.
00:29:21.360 | And this is where it's really a problem
00:29:23.880 | if you are a US citizen.
00:29:25.320 | It probably wouldn't be such a big problem
00:29:28.680 | if you were a citizen of Iceland,
00:29:31.480 | or if you're a citizen of Sweden.
00:29:33.840 | Iceland, or if you're a citizen of Kenya.
00:29:36.640 | Iceland and Sweden and Kenya don't spend billions of dollars
00:29:40.120 | maintaining a global police presence.
00:29:42.560 | Iceland and Sweden and Kenya, to my knowledge,
00:29:45.240 | don't read every email in the world,
00:29:47.320 | don't record every cell phone call that's made in the world,
00:29:50.880 | don't read every text message in the world.
00:29:53.560 | They're not the world's bullies
00:29:55.160 | 'cause they're not the world's superpower.
00:29:57.320 | And so Iceland and Kenya and Sweden,
00:29:59.520 | their taxing authorities wouldn't necessarily have access
00:30:01.680 | to all that information.
00:30:03.600 | The US government does.
00:30:05.400 | And so you play a very dangerous game
00:30:07.840 | when you start to deal in that world and not report taxes.
00:30:11.160 | Now, I don't think that the NSA
00:30:14.800 | actively sends information over to the IRS necessarily.
00:30:18.640 | I haven't seen evidence of that.
00:30:20.360 | But I would not be at all surprised
00:30:22.000 | to read in the newspaper next week that that did happen,
00:30:24.600 | that that does happen.
00:30:26.240 | So you're dealing with a very dangerous game
00:30:28.960 | if you go up against the US government.
00:30:30.760 | And that's not a game that I would want to play.
00:30:32.600 | I try to play nice with bullies and follow their rules
00:30:36.520 | unless I think I can defeat them.
00:30:37.680 | And since there's no chance
00:30:38.520 | of my defeating the US government,
00:30:39.800 | I'm gonna play by their rules.
00:30:41.080 | They are the world's police force.
00:30:44.920 | So you gotta think of that.
00:30:46.040 | The second problem you face is
00:30:47.760 | you don't have any legal protection in a court of law
00:30:50.960 | with what you have decided.
00:30:52.600 | And for all of its faults and for all of the problems,
00:30:56.320 | the US court system does work somewhat predictably.
00:31:00.640 | And the laws that are erected,
00:31:02.960 | as long as you're operating within those laws,
00:31:05.720 | they're fairly stout.
00:31:07.080 | And so you don't want to run the risk of perjuring yourself
00:31:11.840 | by denying the existence of all of your assets
00:31:14.240 | in your hardware wallet.
00:31:15.720 | Now, that secrecy will help you to stay out of court.
00:31:18.320 | But if you're ever in court,
00:31:21.320 | if that secrecy is ever pierced,
00:31:23.160 | and you're ever in court, and if you lose a lawsuit,
00:31:25.920 | well, now, under penalty of perjury,
00:31:28.440 | you are required to undergo a debtor's examination.
00:31:31.000 | You're required to answer all of the information
00:31:34.320 | asked about you and about your financial affairs
00:31:36.960 | so that your creditor can know where to go
00:31:39.720 | and look for the information.
00:31:41.800 | And so at that point in time,
00:31:43.240 | if you do what you've done here,
00:31:47.440 | and if you lie about it,
00:31:48.800 | there's a good chance that you'll go to prison.
00:31:52.880 | Now, you say, well, if they prove it, yes.
00:31:54.720 | But to do that without any history,
00:31:56.840 | without any train of affairs,
00:31:59.920 | would either have to be, number one,
00:32:01.640 | very swift, done with very small assets.
00:32:04.480 | You can't put $10 million without stretching it out
00:32:07.880 | into multiple transactions, et cetera.
00:32:09.920 | And it would have to be perfect,
00:32:11.160 | absolutely perfect with covering your technological tracks.
00:32:15.120 | It's not a risk that I would take.
00:32:17.240 | No, maybe you would.
00:32:18.360 | It's not a risk that I would take.
00:32:20.080 | And more importantly, it's not necessary, in my opinion.
00:32:25.400 | All of the tools and strategies
00:32:26.960 | that I have been talking about are entirely legal.
00:32:31.080 | And as long as you do things in advance,
00:32:34.240 | the court will respect, under the proper law,
00:32:37.960 | the court will respect the constraints of those,
00:32:42.080 | their actions will be constrained
00:32:44.200 | by the legal process that you followed.
00:32:46.760 | And so your solution would be cheaper,
00:32:51.680 | but it's not nearly as good as an offshore trust.
00:32:54.840 | Properly documented, properly put in place.
00:32:57.920 | Because an offshore trust, a good offshore trust,
00:33:01.280 | built well, gives you the ability to fully
00:33:04.040 | and truthfully answer that debtors examination
00:33:06.280 | and avoid going to jail.
00:33:07.800 | Which is one of my number one goals in life,
00:33:10.360 | is avoid going to jail.
00:33:11.600 | And secondarily, it will stand up to the courts.
00:33:16.800 | So you have to make your decisions as you see fit.
00:33:22.720 | And I think your plan is entirely appropriate
00:33:25.520 | for a good way for you to hold your crypto,
00:33:27.400 | if that's what you wanna do.
00:33:28.760 | It's just as appropriate as the average person
00:33:31.280 | taking out cash and keeping cash out of the bank.
00:33:33.800 | It's just as appropriate as the average person
00:33:35.880 | going out and buying gold coins.
00:33:38.080 | You can buy gold coins anonymously
00:33:39.800 | and you can bury them in a coffee can
00:33:41.320 | in somebody's backyard.
00:33:42.880 | And it gives you tremendous safety and tremendous privacy.
00:33:46.240 | But just always be careful that you don't transgress
00:33:50.600 | against that law and potentially perjure yourself.
00:33:52.800 | Because especially if you were a high profile person,
00:33:56.200 | it's not a game that I would wanna play.
00:33:59.720 | It just doesn't make sense to me to take those legal risks.
00:34:03.120 | I think you're better served, leave the United States,
00:34:06.120 | go get another citizenship or announce your US citizenship.
00:34:08.400 | That gets you out from underneath
00:34:10.160 | the thumb of the US government.
00:34:12.200 | Choose a country that's not gonna chase you
00:34:13.960 | around the world and spy on all your emails.
00:34:17.600 | Choose a better country and then go ahead
00:34:19.480 | and you'll enjoy certain benefits there.
00:34:21.400 | So your mileage may vary, but I hope that's helpful
00:34:24.400 | in terms of thinking about the problem
00:34:26.040 | and considering some different ways to solve it.
00:34:29.520 | Let's do one more today.
00:34:30.680 | Christina writes in with some questions
00:34:32.080 | about becoming a certified financial planner.
00:34:34.040 | She writes this and says this.
00:34:35.880 | I've been thinking over the last year or so
00:34:37.720 | that I wanna move into the world of finance
00:34:39.360 | and I pretty much decided that I wanna be
00:34:40.640 | a certified financial planner.
00:34:42.440 | But I'm not sure exactly how to make the transition.
00:34:44.920 | I currently work in data analysis doing marketing
00:34:47.480 | and our company is very small.
00:34:49.000 | Three people plus a couple of developers.
00:34:50.560 | So it'd be kind of terrible if I just up and quit.
00:34:52.600 | But I've been helping a few friends
00:34:53.720 | with their finances all year and it's really fun.
00:34:55.560 | And I know I'd rather be doing that all day.
00:34:58.000 | So I guess I have a few questions if you don't mind.
00:35:00.520 | Can I get started as a financial planner officially
00:35:02.720 | without the certification and how would I go about that?
00:35:05.440 | Is it possible or probable that I could find work part time?
00:35:08.960 | Should I just do the courses first
00:35:10.320 | while I transition out of my current job
00:35:11.960 | or wait till I start working in the industry?
00:35:14.200 | I do have a bachelor's degree
00:35:15.440 | so I just need a certified financial planner
00:35:17.040 | specific courses.
00:35:18.440 | If I wanna move abroad for two years
00:35:20.240 | in the next three years, does it even make sense
00:35:22.280 | to start now?
00:35:23.120 | Thanks so much, love your show, Christina.
00:35:24.840 | Christina, thank you for the nice words.
00:35:27.440 | To begin, yes, you can work as a financial planner
00:35:32.440 | without being a certified financial planner.
00:35:36.440 | I am currently talking about financial planning.
00:35:40.960 | I am a financial planner, but I no longer hold
00:35:44.480 | the certified financial planner designation.
00:35:46.680 | I just quit paying them their dues.
00:35:48.600 | I got it, it was useful for me at a time.
00:35:50.480 | I quit paying them their dues.
00:35:51.440 | I didn't wanna deal with them anymore.
00:35:52.760 | And so I dropped, I'm no longer a CFP certificate.
00:35:56.600 | Now, the certified financial planner board
00:35:58.520 | is obsessive about protecting their trademark.
00:36:01.080 | They would really, really love to own everything
00:36:03.280 | having to do with the words financial planner.
00:36:05.520 | I'm not gonna give 'em that.
00:36:07.120 | I'll give 'em certified financial planner.
00:36:08.720 | It's not on my business card.
00:36:09.720 | I don't use it anywhere, et cetera.
00:36:11.520 | I'm gonna respect their trademark on that term.
00:36:14.120 | But they can't own the words financial planner.
00:36:16.320 | And a financial planner is simply somebody
00:36:18.080 | who helps people plan their finances.
00:36:20.480 | That's what it is.
00:36:21.880 | That's what a financial planner does.
00:36:24.480 | They help somebody plan their finances.
00:36:26.360 | And when I'm sitting here helping you plan your finances,
00:36:29.040 | I am engaging in financial planning.
00:36:31.360 | But I'm no longer a CFP certificate.
00:36:35.480 | Those are the words that they would like me to say.
00:36:37.440 | And again, I'm happy to work with them.
00:36:38.920 | CFP organization does a great job.
00:36:40.520 | I have no problem whatsoever with what they're doing.
00:36:43.600 | But don't think that you have to be a CFP certificate
00:36:47.960 | in order to be a financial planner.
00:36:51.120 | You can be a financial planner and never in your life
00:36:54.440 | become a CFP certificate.
00:36:58.800 | So don't let a credential or a designation keep you
00:37:04.680 | from pursuing the type of career that you would like to do.
00:37:08.280 | There are many people who engage
00:37:10.440 | in financial planning activities.
00:37:13.360 | We've been talking about asset protection planning.
00:37:16.880 | If you were a lawyer doing asset protection planning,
00:37:20.840 | you're engaging in a form of financial planning.
00:37:24.240 | If you're an accountant helping people
00:37:26.120 | prepare their tax returns
00:37:27.440 | and giving them advice on their taxes,
00:37:29.240 | you're engaging in a form of financial planning.
00:37:31.840 | If you sell life insurance and you are helping people
00:37:35.360 | to buy life insurance policies,
00:37:36.880 | you're engaging in a form of financial planning.
00:37:39.360 | If you sell mortgages,
00:37:40.800 | you're engaging in a form of financial planning.
00:37:42.840 | Now, those things are not usually the type
00:37:46.360 | of personal finance, comprehensive financial planning
00:37:49.840 | that covers insurance and investment planning,
00:37:51.800 | a little bit of state planning and tax planning.
00:37:53.720 | Well, that's the market
00:37:54.560 | that the CFP certification goes after.
00:37:57.600 | But don't connect these words automatically.
00:38:00.640 | You can do financial planning
00:38:02.040 | without becoming a CFP certificate.
00:38:05.320 | Now, on that basis, the answer should be clear.
00:38:09.000 | Yes, you can get started as a financial planner officially
00:38:11.520 | without certification.
00:38:12.760 | Many financial advisors,
00:38:16.760 | and here again, my same little rant about financial advisor,
00:38:19.800 | most people engage in financial advice,
00:38:21.160 | but that is a term that usually goes behind a license,
00:38:24.600 | a government license.
00:38:25.720 | Many financial advisors give financial advice
00:38:28.000 | and do financial planning
00:38:28.960 | without ever becoming CFP certificates.
00:38:31.280 | And so you could go that route.
00:38:33.320 | If you wished to become a financial advisor,
00:38:36.800 | you could go and do so.
00:38:38.360 | You can sign up with a brokerage firm,
00:38:40.240 | you can sit for your Series 6 or Series 7 exam.
00:38:44.040 | You could go and become a registered investment advisor.
00:38:47.160 | You sit for your Series 65 exam and open your own firm.
00:38:50.640 | You could do that and never become a CFP certificate.
00:38:53.280 | So the problem here is not figuring out
00:38:57.000 | how to become a CFP certificate.
00:38:59.720 | The problem is figuring out what model of financial advice
00:39:04.120 | or financial planning would you like to engage in.
00:39:08.480 | That's the challenge.
00:39:10.500 | So you could write a blog.
00:39:12.940 | You could help people plan their finances.
00:39:16.140 | You could create a podcast.
00:39:18.380 | You could create a YouTube channel.
00:39:20.060 | You could write books
00:39:21.260 | and help people to plan their finances.
00:39:23.540 | That route wouldn't involve any kind of insurance licenses.
00:39:27.580 | It doesn't involve any kind of investment licenses,
00:39:29.980 | just you giving out personal financial information.
00:39:32.260 | You could be the next Gene Chotsky.
00:39:34.500 | You could also move in a direction
00:39:35.980 | where you sold some kind of financial product.
00:39:38.260 | And that's usually the most profitable way
00:39:40.860 | to be a financial advisor,
00:39:43.340 | selling some version of a financial product.
00:39:45.820 | You could sell insurance policies.
00:39:47.740 | You could sell investment products.
00:39:50.100 | And you could sell those investment products
00:39:52.060 | with commissions.
00:39:53.420 | You could sell them and charge fees
00:39:55.600 | on the management of assets.
00:39:57.220 | Those are normal paths in the financial advice industry.
00:40:00.180 | And those are more profitable ways
00:40:02.700 | for people to give financial advice
00:40:05.140 | and yet be able to make a living and build a business.
00:40:07.920 | Now, if you don't wanna sell financial products,
00:40:10.320 | and if you want to do pure financial planning,
00:40:12.940 | then in that case,
00:40:13.900 | you are going to be looking at a fee-for-service model
00:40:17.900 | where you're going to be delivering
00:40:19.020 | some form of hourly advice.
00:40:21.880 | You're gonna charge people $200 an hour
00:40:24.780 | or $4,000 for a package financial plan.
00:40:28.460 | And in that situation, it's in my opinion,
00:40:30.420 | the hardest business model in the business.
00:40:32.780 | But if that's the route you wanna go,
00:40:34.300 | then in that case, you will be well served
00:40:36.500 | by becoming a CFP certificate,
00:40:38.700 | but you don't necessarily have to wait to be one.
00:40:40.660 | You've gotta become appropriately licensed,
00:40:42.780 | but you don't necessarily have to wait to be one.
00:40:45.320 | Frankly, from what you're describing,
00:40:47.900 | I would probably look in the world of accounting.
00:40:50.820 | Because if you became some form of accountant
00:40:53.500 | or tax preparer, you could use that as a foundation
00:40:56.800 | to allow you to work part-time.
00:40:58.620 | That's a big challenge.
00:40:59.460 | It's how can you, you said, can you work part-time?
00:41:01.220 | Yeah, you could do tax prep.
00:41:02.680 | Become an enrolled agent and do tax prep for people.
00:41:05.540 | And then with that foundation of clients,
00:41:08.100 | then you can start to add on
00:41:09.260 | those other comprehensive financial planning services.
00:41:12.460 | Can you do it going abroad?
00:41:14.740 | Yes, depends on what you mean by go abroad.
00:41:17.380 | If you're gonna move to France
00:41:19.580 | and live in France for the next two years,
00:41:21.420 | you certainly can just simply work a stable business.
00:41:24.340 | If you're gonna go and spend the next two years
00:41:26.100 | backpacking around Europe and Africa,
00:41:28.500 | then it's gonna be challenging for you to run a business
00:41:30.780 | while you're constantly moving.
00:41:32.780 | Now, you can always along the way educate yourself.
00:41:35.300 | You can build a plan.
00:41:36.300 | If you're actually going abroad,
00:41:37.860 | what I would focus on is trying to build up
00:41:39.540 | a marketing plan, a marketing arm.
00:41:42.100 | If you analyze the problem
00:41:43.180 | with a financial planning business,
00:41:44.340 | you usually have the problem of marketing.
00:41:47.740 | And if you can solve the problem of marketing
00:41:50.420 | by having people seeking you out for advice,
00:41:53.220 | then you can figure out what business model
00:41:55.580 | works best on the backside.
00:41:58.640 | Regardless of what path you choose,
00:42:01.340 | you'll need to first solve the problem
00:42:03.220 | of what's your business model,
00:42:05.100 | and then you can figure out when and how and where
00:42:07.900 | to become a CFP certificate
00:42:10.460 | or to become a chartered financial consultant
00:42:13.140 | or to become a certified public accountant
00:42:15.540 | or any of the bazillion financial industry credentials
00:42:19.940 | that you wish to pursue.
00:42:22.140 | CFP board won't pay you a dime
00:42:24.820 | because you get their credential.
00:42:27.140 | In fact, they'll charge you several hundred dollars
00:42:28.780 | every year if you wanna keep their credential.
00:42:31.780 | So don't think that having the CFP credential
00:42:35.140 | is gonna make you money.
00:42:36.420 | It's not.
00:42:37.260 | It might make you more hireable
00:42:39.220 | when you go to apply for a financial planning job,
00:42:41.780 | and it could be worth pursuing for that.
00:42:43.900 | It might make you more likely to be hired by your clients
00:42:48.040 | because you've demonstrated your ability
00:42:51.100 | to gain a broad swath of knowledge
00:42:53.020 | and to help them solve their problems.
00:42:54.360 | They might appreciate your dedication
00:42:56.580 | to formal credentialization,
00:42:58.320 | but the CFP board will not pay you any money.
00:43:01.240 | So solve your business model problem first
00:43:03.520 | and then figure out the CFP model.
00:43:05.580 | Beyond that, I would simply refer you,
00:43:07.300 | if you're interested in the business,
00:43:08.360 | go and read Michael Kitz's work, kitzes.com.
00:43:13.020 | Friend of mine is probably, I think,
00:43:14.860 | the most, one of the more popular financial advisor blogs,
00:43:17.020 | if not the most popular financial advisor blogs,
00:43:19.260 | and he is unbelievably prolific.
00:43:21.380 | So in reading his archives,
00:43:22.820 | you will find plenty of discussions
00:43:24.420 | of business models, et cetera.
00:43:26.660 | Check out he and my friend Alan Moore
00:43:29.340 | built a platform called XY Planning Network
00:43:32.520 | that is specifically trying to change
00:43:35.160 | many of the business models
00:43:36.040 | and allow people to start
00:43:37.280 | independent financial planning businesses
00:43:40.640 | on their own fee-based businesses.
00:43:42.640 | They walk you through
00:43:43.880 | the appropriate licensure requirements.
00:43:47.200 | They'll help you write your Form ADV
00:43:49.360 | and all of the requirements.
00:43:50.400 | I just say this, it's not easy,
00:43:51.680 | and you probably will need some experience.
00:43:53.680 | I think there are financial advisors
00:43:55.440 | who start with nothing and start with their own firm.
00:43:57.840 | I wouldn't have been smart enough
00:43:59.280 | or competent enough to do that.
00:44:01.400 | I think you need some experience.
00:44:02.600 | What I'd recommend is just change from your job now
00:44:05.740 | and go get a job in the financial industry.
00:44:07.880 | And then once you've had a job
00:44:09.400 | or a couple of jobs in the financial industry,
00:44:11.440 | you'll have a better idea
00:44:12.680 | of the direction that you want to go.
00:44:14.860 | And you could do it with traveling.
00:44:17.000 | And there are a couple of people
00:44:18.360 | that I was friendly with XY Planning Network
00:44:20.840 | that do travel quite a bit.
00:44:22.520 | So it certainly can be done,
00:44:24.240 | and it's increasingly easy to do,
00:44:26.560 | but it's not an easy business.
00:44:28.680 | It's a tough one.
00:44:29.520 | So hopefully that points you in the right direction,
00:44:31.400 | and thank you for writing in.
00:44:33.280 | Let's see another of the questions
00:44:34.160 | that I will take.
00:44:35.000 | Close with today's show.
00:44:35.920 | Let me just simply ask you for one favor.
00:44:38.840 | If you don't mind, I would love it
00:44:40.520 | if you would leave a review for my show
00:44:42.740 | in whatever platform you enjoy using.
00:44:45.120 | If you listen on iTunes,
00:44:46.840 | leave a review in the Apple Podcasts app.
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00:44:50.440 | If you listen to Google Podcasts,
00:44:52.320 | just whatever platform you're currently listening to me on.
00:44:54.600 | If you wouldn't mind leaving a quick review,
00:44:56.640 | I would be so grateful for that.
00:44:58.080 | I haven't really focused much on reviews recently,
00:45:01.160 | but I would really love to increase the numbers
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00:45:06.000 | when they leave a quick review.
00:45:07.280 | And just a word, many times people choose
00:45:09.360 | not to leave a review for a podcast
00:45:11.560 | because it takes effort.
00:45:13.000 | If you feel like you gotta sit down
00:45:14.320 | and write a paragraph of honest analysis,
00:45:17.380 | well, here are all the things that Joshua does well,
00:45:18.920 | and here's all of his annoying little quirks, et cetera.
00:45:21.600 | That's great if you have the time to do that,
00:45:24.000 | but even just one sentence is really useful
00:45:26.780 | because at this point in the stage,
00:45:28.420 | the life cycle of Radical Personal Finance,
00:45:31.020 | the most important number is just the number of reviews.
00:45:34.780 | Five stars is awesome.
00:45:36.980 | I hope that the show is five stars for you,
00:45:39.300 | but when somebody's looking to subscribe to a podcast,
00:45:43.140 | usually they just simply look to see,
00:45:45.060 | oh, the number of reviews,
00:45:46.180 | and that helps my show to look like
00:45:47.460 | it's fairly well-established, which it is.
00:45:49.380 | So if you wouldn't mind today as we go,
00:45:51.320 | just at some point today, grab your phone,
00:45:53.220 | your mobile device, whatever you use,
00:45:55.140 | and just on whatever app platform
00:45:57.500 | you're listening to me on, just leave a quick review.
00:46:00.900 | Five stars would be lovely, and a one-sentence review.
00:46:03.860 | That would really be helpful to me
00:46:05.380 | in growing and marketing my show.
00:46:07.540 | Thank you for listening, and remember,
00:46:09.400 | if you'd like to call in for a Q&A,
00:46:10.660 | shall call in tomorrow, Tuesday, December 18th.
00:46:13.520 | Call in with that phone number,
00:46:14.740 | which I'll repeat it again for you here,
00:46:17.100 | 561-440-7362, 561-440-7362 at noon Eastern time
00:46:24.220 | tomorrow, Tuesday, December 18th,
00:46:25.820 | if you'd like to join the Q&A show.
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