Hey parents join the LA Kings on Saturday, November 25th for an unforgettable kids day presented by Pear Deck family fun giveaways and exciting Kings hockey awaits Get your tickets now at LA Kings comm slash promotions and create lasting memories with your little ones Friday Q&A and I have three Straightforward financial planning questions selected for you.

They'll be interesting, but they're straightforward Vincent says I got a bunch of money. Can I afford to retire? Kip says I got too much cash. What do I do? And Joe says do I put money in my traditional 401k or a Roth 401k, please help Welcome to the radical personal finance podcast.

My name is Joshua sheets and today is Friday, January 30 2015 this is the show where you get to ask me anything and I get to tell you what I think It's kind of nice to be asked for your opinion. Sometimes actually a lot of times people don't like to hear it, but Please I'll give you a few ideas of the way I think and hopefully give you a little bit of clarity and understanding and topic financial stuff This Is the show where each and every day I help you unpack and understand the wild woolly world of financial planning and financial advice and What to do with your money and I can't think of a more fun thing to talk about on a more fun job to have Than mine.

So thank you for giving me the opportunity to do this for you for at least a number of fairly lengthy shows this Week, so I've decided to just answer three questions today, and they're fairly straightforward just some simple financial planning questions and We'll see how long it takes but I just picked three and decided to do a quick short quick and short Q&A After all, I think I've probably released Like 11 hours of content already this week.

So hopefully this one will be 30 45 minutes 50 minutes something like that Hopefully it'll be less than an hour so let's kick it off with an email from Vincent and The subject line of Vincent's email was I think something like please save us from our financial planner So that's a good way to warm my heart.

So let's start with this dear Joshua My wife and I are well read in the areas of index fund investing frugal living Early retirement and financial independence including your podcasts We have been on the path to early retirement for many years and we think we are there We both have high stress jobs and want to quit to raise a child and do whatever interest interests us Whether it brings additional income or not We want to have a significant financial cushion, but also don't want to be so conservative that we work years longer than necessary We are worriers and are very conservative in our estimates Although we are fairly confident in our calculations for early retirement timing We hired a fee only financial planner for an outside opinion and the experience was positive But we believe the timing recommended was extremely conservative four years from now without a child Five to six years from now with a child We have a very good handle on our spending as we have been tracking it closely for several years the financial planner did not seem to understand our frugal lifestyle and rather than reducing our current spending by the Cost of working that we clearly communicated.

He added $15,000 per year to our current spending which significantly changes the projections for retirement the explanation given was to account for Unexpected expenses, but that amounts to approximately $20,000 per year in excess of our retirement spending estimate below We would be very grateful for your opinion of our plan to retire now Given the following data, which we have abbreviated to the most important points ages him 45 her 37 debts none own a house and two cars free and clear assets 1 million three hundred thousand six hundred and forty six dollars of Which about seven hundred thousand boxes in a TSP, which is the federal?

Savings program thrift thrift savings plan for federal employees 350 grand in Vanguard index funds and a taxable account little over two hundred thousand in cash and I bonds 22,000 and Roth IRA is $31,000 his pension starting at age 60 and six grand her pension starting at age 62 There will be a minimum of one hundred thousand dollars net after moving and downsizing our house not included in the assets above So we have about 1.4 million dollars of cash to play with right now We're invested 40% of the total US stock market fund 12% in the total international stock market fund 33% bonds in the G fund which is in the thrift savings plan and 15% in cash and we're currently spending $45,000 and we estimate that our retirement spending will be $37,000 per year This is after removing the easily calculated so-called costs of working about ten thousand dollars in property tax and three thousand dollars in gas and Adding estimated cost of health insurance about five thousand dollars per year Note, we'll be moving from a very high cost area suburban Chicago to a very low cost area rural, Florida Isn't that awesome Vincent How awesome?

Congratulations, dude, you guys are rocking it. I love love love getting emails like this. How exciting is that? I mean you're 45 years old. You got a million and a half bucks, basically You know by the time it sounds like you're gonna you're gonna net a hundred thousand dollars after you buy a smaller house is what?

It sounded like from your email so you've got at least you know, you've got at least a Million and a half bucks man, that is exciting Congratulations. So to answer your question Yes, you can afford to retire and Yes, you can afford to do it now if you are confident in your spending numbers So one of the challenges here, and I think you're you're probably being You are probably being a little bit You're being conservative and I think being conservative is awesome.

I Applaud you for sending me a note and I applaud you for going and talking to the financial planner I'll talk a little bit about that experience and why it probably was the way that you do to help you understand Excuse me why it was the way that it was to help you understand a little bit more about what your planner was thinking but The biggest challenge you're gonna have to face is your fear of the future and I think that a few years after you retire You're gonna have this well in hand.

What I would do if I were you is I would figure out how to call Doug Nordman from the military guide.com. He did an interview on the show I'll post a link to that interview in the show notes if you haven't heard it and he's gonna come back on the show It's quite popular and he's gonna come back.

He's out of town. He's traveling for a bit right now. He's retired So why does he have to work? But I'm going to have him on we're gonna talk about a few things But I'm gonna talk about we're gonna talk about fear of retiring Because that's what I hear in your message and I'll give you the financial numbers in just a minute but the biggest thing you're gonna have to face is the fear of crossing the chasm and Basically just simply making the decision to quit Now I Haven't experienced this with being financially independent I am not yet financially independent and able to live off of purely off of the the dividends and growth of my portfolio but Doug has and he's gone through some tough times and but I have experienced this with striking out into Entrepreneurship.

The biggest challenge is simply making the decision that you're gonna do it and As soon as you make that decision that you're gonna do it and now's the time Guaranteed you'll figure out a way and there's not a doubt in my mind that you're able to retire It's not a doubt in my mind everything in your Email that you wrote to me Indicates that you're careful that you're thoughtful that you're a planner that you are expert even if I look and I breeze through this when describing your portfolio for the radio, but if I look at how your portfolio is structured and Where you've chosen it's clear that you know what you're doing with running your own finances and It's clear that you've planned for this you've worked for this you have focused on this you have a clear plan You have a clear budget So you're a planner and you're there Now there's nothing I can say that's gonna take away that that little nagging fear that's at the back of your mind though until you do it There's nothing I can say because the reality is can I guarantee you that you're going to be financially independent?

And you're never gonna ever face the problem of ever having to work again I would never make that guarantee and I and it is anybody who could there's no way to guarantee it No matter how conservative your portfolio is there's always some scenario that we could make up that could be a problem So let's say that your scenario is beautifully allocated in your plan works And in that case the 4% rule the 3% rule or whatever works awesome for you.

Well, you're set but what if We're coming off of a 30-year bubble and bonds and your bond portion of your portfolio doesn't work and what if all of the growth in the stock market is completely fake because it's completely subject to You know Quantitative easing by the Federal Reserve pumping up the market and that's why the market is pumped up And so now for the next 20 years stock stands still and nothing works the way that is supposed to what if what if we're in?

a new norm Well, are you gonna be okay? and I'm telling you you're gonna be okay, even if your portfolio is not What if you take all your money and you put it into a guaranteed annuity payment split among four or five really well run Insurance companies and you know that no matter what you've got your 40 grand coming in that you need coming in Was it possible that the insurance company could go out of business?

It's a possible that the dollar could lose its value. Is it possible that we could enter into a you know a wacky time of Global economy, it's a possible we could go into a world war. All of these things are possible They're improbable. They're highly improbable, but anything is possible So if you spend all of your time focusing on here's what's possible man I could go read zero hedge for a few minutes and you'll be convinced that you you know you need to cash out every single one of your Investment accounts from right today and you got to sell everything and you're just doomed So the major thing you've got to learn to deal with is you got to learn to figure out how are you gonna handle your fear and I think the way you're gonna handle is by being confident in yourself and in your confidence and your ability to make things happen I think you probably already are I'm just making the point to encourage you a little bit I don't think frankly that you're sitting around waiting for me You know desperate for me to answer your question to give you that That attaboy go ahead and then you're gonna do it and pull the team You're gonna march in tomorrow after you hear this and tell your boss I think you've already got the plan and you're just taking advantage of Of an opportunity to get a double-checked a double-checked opinion And I think that's great and I don't think you really care or needed to know what the fee-only financial planner But you're a prudent person and you never know what you don't know and I applaud you for that But the key is you've got to learn how to manage your fear I think the only way to manage your fear at least that I can come up with is to be confident in yourself and in your ability and If you had a worst-case scenario Let's say that you and your wife retire and she's diagnosed with cancer next year and all of a sudden your insurance is Insufficient and you spend you know a million dollars out of pocket on her treatment You're going to places that aren't covered and you're working like crazy to get her treatment.

You know what? You would be okay Because you'd get another job You're not gonna lose your ability to work You're not gonna lose your ability to be financially productive You didn't list your salaries on here, but I guarantee they're pretty good Both of you said you have high stress jobs and they bring in high income So you're not gonna lose that you're not gonna lose that ability even if something happened and you were found liable for Something and you lost all your money.

All your money were stolen from you invested with Bernie Madoff and it's all gone You know what you'd make it back Because you're the kind of person who becomes wealthy You are wealthy because of the kind of person you've become and you don't cease becoming you not don't cease being that person If you lose your money You're gonna be fine Now let's run some quick numbers and here's the only number you need to worry about for this simple math You do need to figure out how to structure a portfolio But just look at the look at the rate of return that you need from your portfolio in order for you to In order for you to make this work, and here's a couple ways.

I'll put this into into into Focus so you have one point four million dollars of assets here And you say that you estimate your retirement spending to be thirty seven thousand dollars Well, if we go by the much-proclaimed Four percent rule four percent of one point four million dollars would be fifty six thousand dollars Substantially more than thirty seven thousand dollars If we go three percent of one point four million would be forty two thousand dollars Three percent it's pretty conservative estimate If we flip it around and we say let's figure out what percentages of it of your net nest egg is thirty seven thousand dollars Divide thirty seven thousand dollars by one point four million and what you wind up with is you wind up with two point six percent That's your current withdrawal rate from your portfolio at a spending level of thirty seven thousand dollars That is the safest of the safe when it comes to safe withdrawal rates of a balanced portfolio and all of the research that we can Look at now remember all that we can do as financial planners is go based upon the research And you can read and probably have read all the same studies that we've read And I don't know anyone that would say that two point six percent wisely invested It couldn't be maintained a two percent two point six percent withdrawal rate couldn't be maintained into perpetuity So if your retirement spending is actually thirty seven thousand dollars It doesn't get safer than that You can hit two point six percent off of dividends.

You're gonna hit two point six percent off of income if you build an income portfolio You can bet you can hit two point six percent on all kinds of things So Things are good. Let me give you another way to look at this Let's assume that you just put all your money in the bank.

You split it up into a bunch of six different Individual accounts all of which have FDIC insurance and the question is how long will one point four million dollars last you if You spend thirty seven thousand dollars per year That is thirty eight years of income It's thirty seven point eight four thirty eight years of income if you don't make any interest on your money and You didn't include although you did mention your pension.

You didn't include Social Security payments We're not factoring that into the two point six percent You didn't include any kind of side income and I know that you don't want to plan on that But I'm telling you you're gonna find a way to make some money doing something I just Maybe there are people who don't but I've never seen them You're gonna find a way to do something make you know, five hundred bucks here and a couple thousand bucks there So it doesn't get any safer than your scenario if your numbers are accurate And this is why you ran into my I bet you ran into problems with your planner There I don't know any financial planner that specializes in working with the early retirement financial independent Independence community.

I really don't and although I love the community. I Probably myself wouldn't actually specialize in that area if it were a planner and the reason is purely selfish The early retirement financial independence community is made up of a massive number of awesome people who are very very frugal and very very cost-conscious and it's a good business decision usually to serve people who like to pay you money and who are less cost-conscious and I personally believe that most businesses that are working in luxury business instead of a necessary business instead of in What's the opposite of luxury necessity?

Necessity businesses that are gonna be more well served so if I were ever building a business, I would want to work in the luxury market because the money flows more quickly and So the early retirement financial independent community is awesome extremely frugal. That's who I am But as a business person, I would focus more on serving me personally I would focus on serving the Palm Beach crowd You know serving them in a multi-family office or a single-family office or serving like the people who value Things and it's not just about where can I get the best deal now?

This is not an insult in any way I'm just illustrating why I think there aren't more planners serving Serving this community there may be a couple out there and I think that if those one or two can identify themselves They'll have more business than they know what to do with because there's such an active online presence in the various early retirement Forums, but the active online presence is very much made up of Also do-it-yourself errs Like you you know what you're talking about And so I compare this to if I'm a chef starting a restaurant Should I start a restaurant specialized in selling high-end food to other chefs?

That's what's tough That's my best gut feeling on why more people aren't serving the early retirement community with financial planning I wouldn't start a business trying to serve high-end meals to chefs. Not the chefs won't go and do it but it's a whole lot easier for me to serve high-end meals to consumers who just love to eat and don't know how to cook and So the media in the financial independent space things like I'm doing things like bloggers are doing things like where people create maybe Products of some kind those are great And the reason they're great the reason my show has such a wide audience of early retirement financial independence community is I'm serving up Information on the subject that people who are hungry for information are hungry for so this is why if you go out in the mass market I'm not serving up information necessarily to people in the mass market Although I'd love to but they're just most people aren't out there interested in saying how can I learn about personal finance?

It's a different type of person so I can serve this community with information That's helpful, and maybe I can build a business on that, but it's hard to serve with high-priced financial planning So most financial planners my point in all that was to give a little insight most financial planners have never dealt with Somebody from the early retirement community and in fact most financial planners based upon my experience I would say have zero interest in the early retirement themselves Yes, they're building towards early retirement But most of us that get into this business were attracted by the large Dollar figures that can be made and so therefore it's much more likely that we're gonna live and want to live a high lifestyle Than to build a frugal lifestyle of early retirement I was the only person that I ever knew as a financial planner who was actually working toward that Most many financial advisors love to spend and they it doesn't the concept of yes savings I'm not saying they're that they're that they're dumb they save money But the idea of just trying to get done as quick as you can is not that's not normal So they're not used to thinking about it.

They don't spend time reading it You know most people don't spend time and most people who are financial advisors don't spend time in early retirement forums It's not something that's of interest to them The other thing is this is important that you understand with the structure of their business when you go into a financial advisory business Everything in your business is deferred compensation So the idea if I were to say how could I build a business where I can you know in five years?

let's say I'm gonna how can I make as much money as I can in five years and quit It would be foolish to try to approach the financial advice business with that with that mentality Because everything is based on the long run Everything is built on that long tail and you where you get rich is a really rich as a financial advisor is if you start at 25 you're hustling from 25 to 30 and you are broke Then from 30 to 40 you're kind of making it but then it's from 40 to 70 That you really make money and so I can't think of anybody I know who would do what you're doing and walk away and if any financial advisor I know who would do what you're doing and walk away because the cost of walking away is simply too high It's you've put too much time and too much sweat into building your business.

It's just simply too high I hope you can understand that. It's not I don't think it's right or wrong It's just a little bit of insight the other thing to recognize because financial advisors don't know don't deal with people who like you Usually people are coming to us either who oftentimes who have problems or who are just simply not so not so tight It's very rare to meet somebody who actually knows consistently how much they're spending in the years that I worked as a financial advisor and in the over a thousand clients that I Perspective clients that I worked with face to face.

I could probably say off of that number a Dozen to a dozen or two that actually knew what they were spending a Very small portion of those dozen maybe a handful were kind of really focused Like Dave Ramsey budgeters where they just say oh, here's my monthly budget for last month.

That is Conceivably rare to find someone who knows that The other ones just simply would you know? The type of people who know exactly is they just ask their bookkeeper or their accountant and they prepare annual financial statements And they just okay. I we spent two hundred eighty thousand dollars last year.

That's that's basically it Almost nobody in our society tracks their money and if they do track it, it's not actual Detailed data and so we as me as a planner. I almost never use a client's numbers What I try to do when I'm calculating how much a client needs to spend is back into it.

I take their gross income I estimate their taxes Then I pull out any Any ongoing payments that I know of so what's the principal and interest payment on their mortgage? How much is going to the car payment and then I back out any retirement contributions And I usually tell them what they're spending and I know more what they're spending than they are because I can look at the numbers Most people don't have any money in savings so I can look at the retirement accounts I can find out how much is going into that account and now I know what the actual number is of what they're spending And so as a planner, especially if you only met with this person one time It's very likely that as he yeah, you said it's a he it's very likely that he just simply has never met anybody like you and so to add a fifteen thousand dollars per year of a slush fund is very Is very prudent on his part But if you don't need that fifteen thousand dollars a slush fund then then you're okay and I doubt that you do because I doubt I bet you that you know exactly what you spend in each category I mean you've calculated your cost of working that means you've read your money or your life that means you have a chart sitting there with your categories and you know exactly what's gonna change and so You got to understand that I think that would explain kind of the disconnect There is nothing I could that you could do at this point.

There's gonna make you safer and more ready to retire Pull the plug go It's what I say and a year or two or three from now You're gonna have a totally different feeling and if you feel like it's stressing you out and you're spending too much money Just do something part-time build a financial advice business consulting to early early retirement community Because you could do that and you know I mean that that that's your three-year project and do it virtually like with that business model that I described the other day show before last You've got this man go for it.

There's nothing you can do check on your insurance. Make sure your insurance is lined up The only thing that could sink the one the one thing that could sink you would be something like long-term care Maybe you've considered long-term care insurance If you haven't consider make sure you plan for it If you don't have long-term care insurance Or think about getting long-term care insurance research that topic and just consider what you're gonna do.

It's it's highly improbable That you're gonna need it You're young. You're probably very healthy. You're probably gonna be even healthier but that's one of those things that we as planners worry about so at least consider it and make a decision because that's one of those things that you know You turn 52 and you get early onset Alzheimer's and now you know Your wife has to spend the next 15 years caring for you that can that can scramble a million-dollar nest egg pretty quickly You know, she's got a higher care now that's not what you're that's clearly not what you're planning for your your Your retirement and you've got to figure out the risk factor.

You've got to figure out. Are you worried about that risk? Are you okay with that risk? But work out your long-term care planning figure out your health insurance planning, but there's nothing you can come up with That's gonna be safer for you today Pull the trigger go for it.

That's my answer Next question Kip says Joshua came across your podcast and I dig the advice in the honesty I've read numerous articles encouraging the use of fee-based financial advisors, but haven't had a lot of luck finding the right person Discouragement set in after numerous canned responses and what seemed like aggressive sales tactics I made somewhat of a half-baked attempt in my early 20s with regularly maxing out a Roth and always Contributing enough to various company 401ks to get the contribution match I've not paid a lot of attention and I recently realized that I'm holding 50% of my total assets in a standard savings account yielding only 1% Without pulling the actual figures, that'd be about 90,000 bucks in retirement accounts Roth traditional rollover and about $90,000 in straight-up cash Terrible, I know My question is this How do I fix or prevent this?

I currently have one investment property with a mortgage That's less than what it's leasing for. I see a couple of fix-it options I could buy another house. I could pay down my existing mortgage. I could invest outside of a retirement account. I Believe adjusting my 401k contribution may be a start to preventing it.

But what about after I max it out? I don't mind paying for advice But what I really want is someone that's hands-on and up-to-date who's helping me get the most out of my money Kip a lot of people in the audience are screaming at you right now Here's what I'd say very simply what on earth are you trying to do?

And I mean that not in a snide way or a snotty way. I just mean like what what are you trying to do? What are your goals? And that's where it all starts and that's where it all ends Clearly, it's clear to me by your statement and by the way that you wrote your email That you simply don't have any specific financial goals.

You might have a general idea of a goal You might ask someday. I want to be rich someday I want to retire but you don't have any specific financial goals and That's okay. I'm not mad at you at most people don't The reality is almost nobody has specific financial goals.

But my answer to you is what do you want to do? if for example you're like me and you want to travel with your kids and you want to buy an RV and cruise the world and and you know, Take a year and drive down to Argentina Then that $90,000 would be deployed into fixing up the house selling it so that you're free going and buying the RV Loading everything up and you would just simply use it to fund your trip If on the other hand you have a goal of starting a snowboard design business and this has always been a real passion of yours and you love snowboarding and for you the most You know fun thing you can think of is to figure out how to do that Then that $90,000 should be put into R&D and buying the equipment that you need maybe getting a 3d printer and and and taking two years off So you can develop the newest way to print carbon fiber for snowboards with a 3d printer Which you can you know sell the technology to the around the world and people can print snowboards on demand and they don't have to pay Baggage claim fees, you know for carrying the big snowboard bag Silly example, but it really is true Now if your goal is you know what I don't like my job and I want to be retired early and You know, then the next question is well, what's the better investment for you?

What's the best investment for you? Maybe it's going ahead and buying a realist a house or maybe it's buying nine houses and putting 10,000 bucks down on each of them because you're gonna build ten a real estate portfolio of ten rental houses and that's gonna be your ticket to financial independence so that you know, you work ten hours a week and and Play golf the rest of the time Or you're satisfied with life and you like your job and everything's pretty good and you just want to minimize some stress So in that case, you know pay off your mortgage So you don't ever have to worry about anything going wrong in the world You always have a paid-for house and just toss the money in a 401k and be done with it And I'm not being flippant What I'm illustrating is that the way to answer your question is simply decide what you want This is why working from a list of written goals is so important Especially personal goals, which are always funded with finance and then working with those financial goals and having them ordered What is my biggest opportunity right now?

What is the thing that I'm trying to do? If you know that then the answer is very clear so at all times Practically, we should have a list of here's what's the next most important thing. Do you want to give the money away? you know, would you like to go and actually make a difference and give the money and you have a Way to do that that for you is a big deal You know, I know I know people all over the world and you know I'd love to give ninety thousand dollars and and there's little businesses.

I'd love to start that would help people and little ways that that can you know, really contribute and I Won't get into more detail than that from my perspective, but maybe that's what you want to do maybe you want to do like You know the urban farming guys did and quit your job and move into the inner city and that ninety thousand dollars You're gonna use to buy three little houses You know for five thousand bucks each and you're gonna invest the rest of it and the mission of your life is going to be to transform an inner city neighborhood Maybe that's what you should do What do you want out of life?

And I'm not being the least bit flippant, but when you answer that question Then it will be very apparent to you What you should put the cash into Until you know the answer to that question you probably should just leave it sitting in the bank No matter what, you know because if you if you wait six months What are you gonna lose out on you know an extra six hundred and eighty two dollars?

Till you know the answer to that question. It should probably sit in the bank, but you should answer that question Once you answer it, you're gonna know Now I'm gonna make an additional comment. I replied back to Kip when he email me. I said, hey, thanks for the answer I put it on my queue for the Friday Q&A shows.

I just said short answer start with your goals Why are you investing at all? What's the goal? You know when you know the goal? What is the optimal investment plan? It'll just work out and then you put the cash in let me slow down. I said then when you know the goal What is the optimal investment plan to hit your goals based on your unique skills and situation?

then put all of the cash to work on that investment plan and he wrote back with this answer and The reason why this answer is important because it illustrates what most people think about their goals are When it comes to investing and it's good, but it's not good enough My primary motivation is passively capitalizing on my savings Ideally, I'd like a set it and forget it strategy modest gains with modest risk Maybe I need a portfolio manager early on an advisor put me in loaded funds I've had a hard time trusting since if I went with a portfolio manager, my main concern would be performance and cost I don't mind paying a fee, but I'd like it to be competitive and comparable So I'll answer this directly number one.

My primary motivation is passively capitalizing on my savings. Why? Again I'm not being flippant why? If it's okay, I like I just kind of like doing what I'm doing gonna toss some money here I'm really happy with life. Then that's then that's a good answer. And now we understand I want to set it and forget it strategy modest gains with modest risk I don't know what modest gains are and I don't know what modest risk is As far as I'm concerned everything is risky and everything has some gains and and you just got to figure out what risks Are you willing to bear?

but Investing with just a generalized. Oh, this would be nice Man, you're doomed. You're doomed with that kind of plan Even if it's this long-range thing with retirement what you need to know is you need to know How much gains do you need to hit your goal? And if you don't have a goal, that's okay But you know, you're not gonna know what is modest and what is modest So the way that I would do that is back into it.

So let me assume a mainstream scenario Let me assume Kip you're happy with life. You love, you know, you love what you do. You love where you live You just love everything that's going on with life Well, then still at what age would you like to be in a position to not to have to work if you didn't want to?

calculate that Everything's great. I want to be a 75 perfect. Now we know Or 65 or 55 or 62 or 71? Whatever Okay, how much income would you like coming in at that point in time? That's the next question about what I have now All right. What do you have now?

We calculate that out. How much can you save and afford afford to save and invest every month right now and That's gonna give you the rate of return and then calculate back and ask yourself What's the rate of return that I need from my portfolio? For me to hit this on an inflation adjusted basis And Then that'll let you know what you need now if you need a 1% return Then your answer is probably 1% nominal not real but 1% nominal which this you would never need this But if you need a 1% rate nominal rate of term meaning the stated rate of return Even after you've adjusted your calculations for inflation, you're just saving so much money every month that you can get there Well now you why take any more risk?

You just trot down to the bank and you buy CDs and now you have modest gains and there's practically no risk. It's modest risk At least it's modest market risk. It's not necessarily modest dollar risk. It's not necessarily modest inflation risk It's not necessarily modest any of those risks just modest market risk But that's not gonna be the answer to that calculation and so You do another calculation and the answer is I need a 6% rate of return.

Okay. Well, how can you get that? Well this you might trot down and you know But do what Vincent did in the last the last question earned by a Vanguard, you know Total stock market index fund modest risk. It's got some market risk, but it's pretty deferred You know also modest gain not gonna be anything spectacular, but it's probably gonna deliver, you know, five six percent Probably a little bit more but who knows Modest gain modest risk set it and forget it That's my answer and you've got to answer every investment question with what's my goal for this investment What's my goal for this investment?

Why am I investing? because remember every dollar that you invest is a dollar that you can't consume and We don't invest for any purpose other than future consumption. That's it You invest so that you have more money in the future for you to consume. That's rational. So if you don't need to invest Then go ahead and consume it now and you can consume it in any way that aligns with your values You can consume it on fancy stuff.

You can consume it on fancy trips You can consume it on a trip around the world You can consume it by giving it away because that brings you pleasure and you're the what's that the guy that goes out at Christmas Time you're mr. Santa Claus or whatever and you've given out hundred dollar bills That's consumption and that's in line with I suppose his values.

I mean, of course, it's in line. He wouldn't do it if it weren't It's pretty simple but you got to know your goals you got to know what you're trying to do When you get clear on that The investment will make sense then then the best will will return it'll emerge One comment on the portfolio manager at this state.

I wouldn't say what you need is a portfolio manager at this stage What I would say is you need a financial planner someone who can help you figure out what you want out of life And in that scenario, you've got to figure out, you know, who can you find that's gonna do that?

One thing that concerns me well two things that concern me in your email here You said maybe I need a portfolio manager early on an investor an advisor put me in loaded funds I've had a hard time trusting since if I went with a portfolio manager, my main concern would be performance and cost I don't mind paying a fee, but I'd like it to be competitive or comparable.

I Don't know what your experience was with the advisor who put you in loaded funds. I would say I disagree with many people There is nothing inherently unethical about selling or buying loaded mutual funds If that's the way that you've agreed with your financial advisor that they're gonna be Compensated is based upon the commission from the sale of a mutual fund Then that's the agreement that you've made So unless that was done in secret or unless the advisor didn't disclose that that was the case Then what was it that caused you to not trust that person?

Just because a fund is a loaded fund again. I've sold plenty of loaded funds in the right context with full disclosure clearly showing my client what their options were and Clearly demonstrating the cost and the benefit. I Don't see the ethical problem with selling loaded funds If you want the advisor services They've got to be paid somewhow and that could be paid with an hourly fee With a check that you write out of your paycheck on some kind of monthly or annual retainer fee They can be paid on commission or they can be paid based upon A fee for assets under management.

So I don't say I wouldn't say that you have a that there's necessarily something that you can't trust unless the advisor was deceptive and Where probably I think people might feel deceived is if they don't know that you can go out and buy unloaded funds but you know, do I Consider my my real estate agent to have deceived me because they get a commission when I bought a house with them when I could Have gone out and bought a house without a commission That's where it's questionable.

And so my only solution to that is full disclosure and careful conversations I always tried to make sure that every client knew all of their investing options and that if they wanted to work with me They did so because they needed and wanted my advice and then I presented to them the different ways that they that I'm Compensated and they could choose if they match certain scenarios they could choose and some of the times I was compensated with the sale of a loaded mutual fund and I believe my clients received far more value from me in that scenario than not and I've also had multiple clients Where they looked at the commissions and they looked at the fees and they said, you know what Joshua?

I just can't I'm just not willing to pay this. I said I understand in that case. Here's what you can do Here's an online brokerage account. Here's an online mutual fund account. Here's an online this here's a this Here's where you can go and you can get this service for free And you know what to the best of my knowledge the two clients that I'm thinking of the money continues to sit in a savings account Because nobody has got they didn't want to pay my fees the money sits in the savings account They're no closer to their goals than they were when they met me and I hate that They would have been better off This wasn't what I proposed, but they would have been better off buying all loaded mutual funds Than they are right now because they missed out On a massive increase because their money was sitting in cash.

So it's very tricky It's I mean the ethics of that I think are tricky and the only way I know how to deal with it It's to let each person make sure everyone is fully educated on all of their options that they understand what they're giving The second thing I will all comment on here is you said here if I went with a portfolio manager My main concern would be performance or cost.

I don't mind paying a fee, but I'd like to be competitive or Comparable. I would recommend to you that you really understand what you what you expect an advisor to do for you You might find some advisors who will promise out performance. I have never seen any statistically reliable Indication that I can predict in advance who's going to outperform.

I've never made that claim in my life To me that is not the primary service of an advisor. The primary service and of an advisor is Wrapped up in excellent financial planning and by that I'm referring in this context to Helping you with to save money on taxes helping you to make intelligent choices with your overall performance some excellent excellent financial coaching in the sense of Helping you to figure out what you want That's what you need is you need a life coach to help you figure out what you want And then number three helping you make sure you don't shoot yourself in the foot Because if you say I need modest gains and modest risk if it were appropriate and over time if I were working with you I could get you into something with great gains and almost no risk and Coach you through those times that you need coaching Which is when you're about to bail when the market is at the bottom when you're about to jump into the latest greatest hot tip That you got when the market is at the top so that is You got to understand the services different advisors are gonna deliver different services If you just want a portfolio manager Who's gonna do a good job go buy an active mutual fund and you can hire a perfectly good portfolio manager.

You can find one If you don't need a portfolio managers go buy an index fund if you need an advisor So my point is and I hope this is helpful But you got to understand what you want what you need and that's the thing that we all need to do What do we want?

What do we need at this stage in life now who can serve what we need? Hope this is helpful for you, but in I hope it's instructive for other people in the audience But you need to understand what you want what you need what you're trying to accomplish when you bring those things together Then you'll be able to create a plan You might be a new listener if you are go ahead and keep listening or listen to the archives This show is meant to be consumed in a cumulative manner So go back through the archives if you haven't and listen to past episodes But hopefully you'll come up with some ideas so that then you have a more specific question.

I think it was Leave you with two comments. I think it two quotes. I think it was Tony Robbins who popularized the saying or at least that's I think who I heard it from if you want a better answer ask a Better question and I think that is the specific thing That that you need you and I both need to learn is always to ask better questions questions that are better Formulated because depending on the question that we ask that's the answer that we get So especially in finance, we need to ask more specific questions I can't possibly answer a question as general as yours because I don't know what the constraints are But with a set of very specific constraints then the answer becomes apparent So the key is to understand what the the question is the other quote from years ago I used to love listening to Zig Ziglar.

I just loved his southern accent and his kind of down-home homespun You know thing and he used to say, you know, you got to become a meaningful specific and not a wandering generality. That's the fix here Every dollar should have a name and every dollar should have a goal and once you become a meaningful specific and you have goals that are specific and Here's what I'm trying to accomplish then all these financial questions are Simple and they're easy But as long as you're sitting here with a general question and a general goal Then you're gonna be batted around the financial advice industry.

You're gonna be batted around from one person to another You're gonna be batted around from one You know from one Theory and philosophy and one person's gonna say buy CDs and the other person's gonna say buy index funds and the third person is gonna Say invest in real estate and the fourth person is gonna say buy fixed index annuities and the fifth person is gonna say Some other variation and there's a thousand more But once you know what you want The question becomes simple.

Excuse me. The answer becomes simple in many ways this is all the financial planners do is we take data in and we give data out and All we work out is essentially a computer and then the soft skill is being able to help you understand what you want and then provide solutions, so I Wish you luck man, write back to me and let me know what you come up with.

I'd be love to hear Last question comes from Joe. He says hey Joshua. My name is Joe and I'm 24 years old I've been listening to your show for a while now and I really enjoy it Keep up the good work. My question has to do with whether or not a Roth 401k is the right move for me Currently, my gross income is fifty eight thousand six hundred and sixteen dollars this year I've contributed six percent of my adjusted gross income into a Regular 401k and my employer matches 80 cents on the dollar up to the first 5% of my pay I also contribute to my Roth IRA and will max it out at five thousand five hundred dollars My employer just recently began offering a Roth 401k option And my question is whether or not it is the best move for me to make to begin contributing to the Roth versus the regular 401k I understand the tax benefits on the front end at my young age and do believe taxes will rise in the future and Also that I will hopefully be in a higher tax bracket in retirement than I am now In my mind the advantage of the Roth is the higher contribution limit eighteen thousand dollars instead of five thousand five hundred dollars But the advantage of the Roth IRA, I think you meant the Roth 401k I mean he did mean the Roth 401k But the advantage of the Roth IRA is that I have it at Schwab and I have lower fees and more investment options than inside My 401k I would like to keep my net take-home pay the same and I've tried and I'm having trouble running the math to figure Out which would be the better option in addition.

I have the option to do a Roth 401k conversion on the twelve thousand dollars That's in my regular 401k your advice would be much appreciated About me. I've got twenty seven thousand in the Roth twelve thousand a 401k three thousand a taxable account Investment account six thousand a savings account and two grand and a checking account I owe forty one thousand on federal parent plus student loans at seven point six five percent and sixteen thousand five hundred dollars at Five point two five percent.

I currently am on the standard repayment plan and make an extra one hundred dollar payment each month on top of that No credit card debt or any other type of loan. I own a 2005 Camry that's paid off Joe Joe this is uh, this is The question that I don't like getting more than anything else Because it's impossible for me to give a complete answer on it because I don't know enough facts And even if I did know enough facts, I still have to make a gut call on the Roth versus the non Roth scenario The reality is that if you've ever heard that this is a simple decision You've heard from someone that doesn't understand how complex this is.

There are so many different variables that impact The the decision of what is right or not right in the Roth versus the traditional approach There are so many variables that the best we can do is just simply make a guess And I could toss out a dozen variables, but I'm not gonna right now and I mean it's everything from It's not good of me for just me to say I'm gonna I could toss out but I'm not going and then just start tossing out There are a lot of variables including income now income in the future tax brackets now tax bracket brackets in the future Marginal tax rates compression of the tax rates other taxes.

Not all taxes are raised just by increasing the brackets So it's possible the brackets could be exactly the same but you know The the the the money the subject Social Security could be different I mean, there's so many answers to this and at some point here I've got to get the show done on this which is gonna be the comprehensive guide to Roth versus individual but the reality is it's gonna leave you at the end of it just more confused than ever and Just the fact that and less confident than ever because I've given you more data and you're gonna sit there and say, huh?

Now I really don't know what to do The end of the day we're all just guessing and we're guessing making educated guesses But when you're 24 years old, and I'm basically got and I basically have a 76 year time horizon You know to get you out to age a hundred and then I've got to figure out Well, what what income are your kids gonna be making?

I mean if I'm working with someone who's 60 years old and they're doing a Roth conversion and I got asked Well, you know your kids are your kids making a high income or a low income? Because then what assets you're gonna leave are you gonna leave behind and it's an impossible question to answer So all we do is we give some guidelines and we make some guesses and unless you know more specifics about your scenario So, you know, okay I'm in a business that it's unlikely that I'm ever gonna make a lot of money So now I can know that or I'm in a business What I mean is is your income gonna go up at 3% per year with cost of inflation Raises or is it gonna go up at 23% per year because you're in a highly compensated Field where you can improve your sales skill That's a big factor because that you know, depending on how I calculate your contributions to be that's tough I got to figure that out or are you gonna be doing any kind of early retirement strategy where I can follow some of the plans that that You know I've brought people on the show to demonstrate this where you're gonna work for 20 years and then you're gonna retire and then I can Do 0% tax Roth conversions.

So anybody who says is just simple I think doesn't understand all the all the inner workings of it but at the end of the day just because I go round and round in circles and and You know make you think I'm smart because I give you all these different variables that doesn't help you and so at the end of the day, we just got to stick a thumb in the air and make a guess and My answer is yeah at your age 24 years old making 60 grand man.

I just toss it into the Roth And I could be wrong But that would be my guess Hopefully you're gonna make more money. I'm a 24 years old. This should be the least you'll ever make Hopefully if you're listening to the show, you're gonna make a lot more money in the future 60 grand brackets, you know, you don't say anything about family or other scenarios So reality is 60 grand of an individual.

You're not married. You don't have dependents. You don't have anything like this You're gonna be you know, fairly highly taxed But it's probably gonna be less than it is in the future. So my best guess yeah go with Roth and It's just an educated guess and and a thumb in the air now whether you go traditional Excuse me put the money into the Roth 401k instead of the Roth IRA As long as you're taking as you're long as you are taking advantage of the Mac of the match Then I would So you've got to make sure you take advantage of the match first Going into the Roth 401k and then I would go back from that and put it in the Roth IRA And my reasoning for that is both what you said as far as okay.

I've got lower fees and more investment options. That's true but also That you can get the money out more easily if you have need of it. I Don't know if you're married. I doubt it. You don't mention anything about that and you're 24 years old So let's say that all of a sudden you meet the girl of your dreams and you decide you're gonna buy an engagement ring But you don't have the money and savings you didn't plan for it Well if the money's in the Roth IRA You can take two you can take two grand of your contributions out and go buy the ring So something like that is just gonna be more flexible in the Roth IRA It's and by having it in the Roth 401k You're gonna be subject to whatever the 401k rules whatever the rules that are written on the plan are Into the raw in the Roth 401k system, so they may or may not allow a loan But it'd be nice to avoid it.

They may or may not allow Contributions and so you just you're just gonna be more flexible if you keep it in your individual Roth IRA And I think that will help you. I'll tell you what I would do man. Get rid of that that that student loan Make sure in this what I do more in the Roth more or not and get rid of the student loan Man, I would want to get rid of this student loan you owe $41,200 on a federal student loan at 7.65 percent interest you can get a guaranteed 7.65 percent rate of return by paying that thing off Guaranteed 7.65% that is healthy that is strong and Also, you can free up the cash flow which may as you're young in your career might be helpful for you You might want to transition from the career where you are now to a different career You might want to start a business So if you can free up the cash flow, that'll be beneficial and if you can just knock that out Remember you can't get rid of student loans They're creditor proof and excuse me.

They are you can't bankrupt your way out You're always gonna have it and seven point six or five percent even five point two five percent I Mean if you had one of these loans that was at one and a half percent interest or two and a half percent interest I'd have to run some, you know, I'd have to think more about that.

But for me my two cents Get that thing out of here seven point six five percent guaranteed rate of return Also increasing your flexibility You know with lower cash flow get rid of that thing That'd be what I would do and I would personally prioritize that probably over and above a bunch of money in the Roth Although I would have to think that through and you know your situation.

So think that through I Think a key variable in financial planning. We don't talk about enough is flexibility and I tell you this I couldn't be doing the business that I am doing right now and taking the entrepreneurial, you know jump if I had a bunch of student loans Simply couldn't do it and So I'll take flexibility myself at a little bit of financial cost Because flexibility is life and that's the thing is is that we're doing life not math and math needs to contribute to life But at the end of the day these lifestyle goals and lifestyle Decisions have to have to be counted heavily So hope that helps I will to get this show done on at some point here soon I will get this show done on Roth versus traditional and it will leave every one of you as can more confused than you were before That's my promise, but at least you'll feel like you're a little bit more educated in a confused That's the best I could do for you how on earth do I predict political winds of change how on earth do I predict I Can't I have no idea?

So we'll just go through a bunch of questions and then you at the end of the day You'll have to figure it out for yourself So that's it for my Friday show and I just thank each one every one of you for being here. I've had a great week It's been a fun week.

It's been a challenging week. I've engaged I've enjoyed very much have enjoyed interacting with all of you who have emailed me all of you who have commented on on the shows Including on Monday's show. I have enjoyed very much. I love I've got the best job in the world because when I get to do this, I mean just think about how much you get to learn from people and Think about how amazing this is the more people that you're that you're in that You know and that you meet in your life the more you learn because you get to learn from them.

Well, I Get to do something like this where I've got thousands of listeners some I mean some of you guys are so you're 50 times brighter than I am and And I mean, I can't lose That's why I take the track that I do either I either either I'm right in something I say and I help some of you Or I'm wrong in which case I get to learn that I'm wrong and then I get to become right and so I win So I can't lose it's it's a beautiful beautiful thing.

I love doing this. Thank you all so much for your support Shutting down the membership program this weekend. So if you're hearing this it'll be gone by Monday it'll come back in the future, but it's gonna come back looking differently and If any of you want to get in while it's on sale I will never forget the initial round of the irregulars.

I'll explain next week as soon as I can get it done I'll explain what I'm doing and what I've learned with it but I'm never gonna forget you guys speak and gals because you've supported me from the beginning and I'll make sure that I Always honor that and remember that it's a big deal to me But if any of you want a discount I haven't fully figured out what you're gonna get but jump in and grab the irregulars this weekend At the $99 level that'll be a steal for you Have a great weekend everybody.

I wish you a lovely lovely weekend Cheers. See you on Monday Thank you for listening to today's show if you'd like to contact me personally My email address is Joshua at radical personal finance comm You can also connect with the show on twitter at radical PF and at facebook.com slash radical personal finance This show is intended to provide entertainment education and financial enlightenment But your situation is unique and I cannot deliver any actionable advice without knowing anything about you please Develop a team of professional advisors who you find to be caring competent and Trustworthy and consult them because they are the ones who can understand your specific needs your specific goals and provide specific answers to your questions I've done my absolute best to be clear and accurate in today's show But I'm one person and I make mistakes if you spot a mistake in something I've said please help me by coming to the show page and commenting so we can all learn together Until tomorrow.

Thanks for being here Hey parents join the LA Kings on Saturday, November 25th for an unforgettable kids day presented by Pear Deck Family fun giveaways and exciting Kings hockey awaits Get your tickets now at LA Kings comm slash promotions and create lasting memories with your little ones