1 00:00:00,059 --> 00:00:02,525 Speaker 1: Hi, I'm Stacey Hyde and I'm back with another 2 00:00:02,645 --> 00:00:05,913 episode of Better Financial Health in 15 minutes or less. 3 00:00:05,913 --> 00:00:11,711 What I want to talk about today is we live in some pretty scary 4 00:00:11,711 --> 00:00:12,132 times. 5 00:00:12,132 --> 00:00:16,910 There's a lot of talk about recession, stagflation, what 6 00:00:17,030 --> 00:00:21,503 tariffs, what's going to happen, and you may think, well, I need 7 00:00:21,503 --> 00:00:22,224 to invest, but I'm scared to invest. 8 00:00:22,224 --> 00:00:24,486 You may think, well, I need to invest, but I'm scared to invest 9 00:00:24,486 --> 00:00:24,486 . 10 00:00:24,486 --> 00:00:28,792 And so what I'm hoping to share with you today is why it's 11 00:00:28,891 --> 00:00:41,648 actually scarier to wait, Because the younger you are, the 12 00:00:41,648 --> 00:00:42,450 a long time. 13 00:00:42,450 --> 00:00:48,840 Basically, throughout, from like 2010 to 2020, we really 14 00:00:48,920 --> 00:00:50,143 didn't see much inflation. 15 00:00:50,143 --> 00:00:55,320 Interest rates were super low, Prices stayed pretty level, but 16 00:00:55,420 --> 00:01:01,731 ever since the pandemic and the supply chain disruptions and the 17 00:01:01,731 --> 00:01:10,341 incentives to people the incentives to people it's really 18 00:01:10,341 --> 00:01:11,825 caused inflation to tick up, and now we're seeing it in our 19 00:01:11,846 --> 00:01:13,668 homeowner's insurance, the price of eggs, everything is just 20 00:01:13,769 --> 00:01:18,102 costing a lot more, and so that rate increases. 21 00:01:18,563 --> 00:01:22,588 The reason that you need to be investing, not just saving. 22 00:01:22,588 --> 00:01:26,834 And I want to separate those out because I think of them in 23 00:01:26,894 --> 00:01:32,909 three ways you have saving, and then you have investing, and 24 00:01:32,948 --> 00:01:36,700 then you have speculating or gambling, and let me explain 25 00:01:36,740 --> 00:01:37,522 what I mean by that. 26 00:01:37,522 --> 00:01:40,870 Savings is money that goes into your bank account. 27 00:01:40,870 --> 00:01:44,004 This is money for your emergency fund. 28 00:01:44,004 --> 00:01:47,385 This is money that you can get your hands on quickly and it's 29 00:01:47,444 --> 00:01:48,650 not going to grow a whole lot. 30 00:01:48,650 --> 00:01:51,960 I mean, you can help it by using a high yield savings 31 00:01:52,021 --> 00:01:54,826 account, which we've talked about before, but it's really 32 00:01:54,966 --> 00:01:56,030 safe, steady money. 33 00:01:56,030 --> 00:02:00,563 Investing now that is something where you're buying. 34 00:02:01,686 --> 00:02:04,010 You've heard me talk about before. 35 00:02:04,010 --> 00:02:05,432 If you've been around very long . 36 00:02:05,432 --> 00:02:10,169 We're fans of index funds or passive investing where you own 37 00:02:10,210 --> 00:02:14,061 the whole market or, like all the large company or all the 38 00:02:14,121 --> 00:02:18,556 small companies international stocks, emerging markets where 39 00:02:18,596 --> 00:02:21,122 you're owning broad sectors of the market. 40 00:02:21,122 --> 00:02:26,250 That is what I consider investing when we start getting 41 00:02:26,311 --> 00:02:29,194 into crypto, into picking individual stocks. 42 00:02:29,194 --> 00:02:34,310 That is closer to gambling or speculating, because that may 43 00:02:34,389 --> 00:02:38,424 pay off really, really well, but you may lose everything. 44 00:02:38,424 --> 00:02:43,313 Whereas if you stay in one of those broad-based investments, 45 00:02:43,840 --> 00:02:46,067 yes, some of the companies are going to do great and some of 46 00:02:46,086 --> 00:02:49,626 them are going to do terrible, but overall you're going to do 47 00:02:49,686 --> 00:02:53,377 just fine because you're taking the risk of the market and 48 00:02:53,498 --> 00:02:57,764 history shows us that the markets do well over time. 49 00:02:57,764 --> 00:03:01,168 In the short term, it can be up and down and all over the place 50 00:03:01,168 --> 00:03:06,474 , but if you step back and look over a longer term, your chances 51 00:03:06,474 --> 00:03:07,656 are you're going to do well. 52 00:03:07,656 --> 00:03:09,282 And what do I mean by longer term? 53 00:03:09,282 --> 00:03:13,372 I'm talking five to 10 years, so you could have several years 54 00:03:13,431 --> 00:03:14,600 in a row of bad markets. 55 00:03:14,600 --> 00:03:17,003 We really haven't had that since. 56 00:03:17,003 --> 00:03:23,013 You know, late 07, all of 08 was awful and then in March of 57 00:03:23,052 --> 00:03:25,096 2009, the market bottomed out. 58 00:03:25,096 --> 00:03:29,465 We've had some short-term pain, like early on in the COVID. 59 00:03:29,465 --> 00:03:34,300 Markets were off huge, like 20% in a couple of weeks, and then 60 00:03:34,502 --> 00:03:37,550 in 2022, markets were also down. 61 00:03:37,550 --> 00:03:41,902 But we haven't really had any prolonged downturn and markets 62 00:03:41,984 --> 00:03:44,748 could do that and likely will do that again. 63 00:03:44,748 --> 00:03:48,241 So that's why it's important to have your cash reserves in case 64 00:03:48,241 --> 00:03:49,443 something goes haywire. 65 00:03:50,286 --> 00:03:53,734 But I want to just give you a couple of numbers to think about 66 00:03:53,734 --> 00:03:56,443 , why it's important to start early. 67 00:03:56,443 --> 00:04:00,429 So say you, for whatever reason , maybe you got a big tax refund 68 00:04:00,429 --> 00:04:05,514 this year and you have $5,000 and you invest it until you're 69 00:04:05,555 --> 00:04:06,276 65. 70 00:04:06,276 --> 00:04:10,625 If you put it in the market and assume a pretty conservative 71 00:04:10,806 --> 00:04:14,991 for equity investments of 7% rate of return, your value at 72 00:04:15,070 --> 00:04:19,617 age 65 is over $53,000. 73 00:04:19,617 --> 00:04:26,721 Is over $53,000. 74 00:04:26,721 --> 00:04:28,365 If you put that same $5,000 in your bank account and you didn't 75 00:04:28,365 --> 00:04:28,966 monitor the interest rate. 76 00:04:28,966 --> 00:04:31,651 So say you average 1%, that's going to be only worth $7,000. 77 00:04:31,651 --> 00:04:33,596 That's a huge difference. 78 00:04:33,596 --> 00:04:37,444 Now if you're 40, the difference is not as great. 79 00:04:37,444 --> 00:04:44,151 It's $27,000 from 40 to 65 at 7%. 80 00:04:44,151 --> 00:04:48,136 So you basically have $22,000 worth of growth. 81 00:04:48,136 --> 00:04:52,148 If you put that same money in that 1% savings account, it only 82 00:04:52,148 --> 00:04:53,992 grows to $6,400. 83 00:04:53,992 --> 00:04:55,661 That's a huge difference. 84 00:04:56,060 --> 00:05:00,567 But let's think about if you're trying to save on a monthly 85 00:05:00,608 --> 00:05:05,581 basis or invest on a monthly basis and you put $250 a month 86 00:05:06,422 --> 00:05:11,728 into an IRA, a Roth IRA or just an after-tax investment account. 87 00:05:11,728 --> 00:05:19,124 That same investment $250 a month from age 30 to age 65 at 88 00:05:19,184 --> 00:05:23,911 7% is going to grow to $427,000. 89 00:05:23,911 --> 00:05:28,221 Now if you do that but you're too scared to take any risk I 90 00:05:28,262 --> 00:05:30,769 don't want any risk, I'm just going to put it in savings 91 00:05:31,711 --> 00:05:34,704 you're only going to have $125,000. 92 00:05:34,704 --> 00:05:41,617 So you would have $302,000 more by investing in that risky 93 00:05:41,697 --> 00:05:42,278 stock market. 94 00:05:42,278 --> 00:05:43,721 You could have a lot more than that. 95 00:05:43,721 --> 00:05:44,723 It could be less. 96 00:05:44,723 --> 00:05:49,937 But history says if you put it in there and you leave it alone 97 00:05:49,976 --> 00:05:53,692 and you just let it grow and you ignore it, it's going to work 98 00:05:53,791 --> 00:05:54,334 out for you. 99 00:05:54,334 --> 00:05:58,403 To give you a comparison if you started at 40 doing that same 100 00:05:58,423 --> 00:06:03,072 250 a month, it's only going to grow to almost $196,000. 101 00:06:03,072 --> 00:06:10,747 So by starting early, at 30 versus 40, you're going to have 102 00:06:11,728 --> 00:06:19,704 $233,000 more at 65, just by starting 10 years earlier. 103 00:06:19,704 --> 00:06:24,721 That's the power of compound interest and what compound 104 00:06:24,843 --> 00:06:28,170 interest is and the reason it's so huge is you're earning 105 00:06:28,410 --> 00:06:34,466 interest on interest on interest and it just grows exponentially 106 00:06:34,466 --> 00:06:35,307 over time. 107 00:06:35,307 --> 00:06:39,608 So that's why it's really really important to start early. 108 00:06:40,855 --> 00:06:43,744 You know, the easiest way to do it for most people is to take 109 00:06:43,783 --> 00:06:46,336 advantage of their employer's retirement plan. 110 00:06:46,336 --> 00:06:51,507 The younger you are, the more valuable I think using the Roth 111 00:06:51,627 --> 00:06:53,317 option in your 401k is. 112 00:06:53,317 --> 00:06:54,680 If that's available to you. 113 00:06:54,680 --> 00:06:58,028 You'll still get matching dollars if you contribute to a 114 00:06:58,088 --> 00:06:59,598 Roth versus a pre-tax. 115 00:06:59,598 --> 00:07:02,790 Now, any money your employer puts in, that's always going to 116 00:07:02,810 --> 00:07:04,656 be pre-tax money you put in. 117 00:07:04,656 --> 00:07:08,425 Most employers these days give you the option of contributing 118 00:07:08,446 --> 00:07:09,487 to pre-tax or Roth. 119 00:07:10,795 --> 00:07:15,949 My personal opinion is if you're under 40, you definitely want 120 00:07:15,968 --> 00:07:17,312 to, if not do all Roth. 121 00:07:17,312 --> 00:07:22,324 You want to use some Roth because what you put in will be 122 00:07:22,345 --> 00:07:24,949 a small part of what your balance is at retirement. 123 00:07:24,949 --> 00:07:27,023 So you want to take advantage of that time. 124 00:07:27,023 --> 00:07:30,877 Now, as you get older and closer to retirement, you don't 125 00:07:30,956 --> 00:07:34,944 have as much to compound, so pre-tax may work better for you, 126 00:07:34,944 --> 00:07:39,115 but you don't need a lot of money to get started. 127 00:07:39,115 --> 00:07:42,415 If you don't have $250, start $25. 128 00:07:42,415 --> 00:07:46,259 That's why a 401k works well, because you can do a small 129 00:07:46,298 --> 00:07:47,704 amount, a percentage. 130 00:07:48,896 --> 00:07:52,545 But I also think it's great to save outside of your retirement 131 00:07:52,564 --> 00:07:56,920 plan because then you're not subject to early withdrawals if 132 00:07:56,940 --> 00:08:00,588 you're not 59 and a half and penalties and that sort of thing 133 00:08:00,588 --> 00:08:05,204 , and you can pay potentially lower capital gains taxes when 134 00:08:05,264 --> 00:08:08,678 you sell something that has done well instead of ordinary income 135 00:08:08,678 --> 00:08:08,678 . 136 00:08:08,678 --> 00:08:13,488 You don't have to be perfect, you just need to get started. 137 00:08:13,488 --> 00:08:19,363 And if you're overwhelmed with the options, you know S&P 500 138 00:08:19,464 --> 00:08:23,579 index, a total market index that's even better because it's 139 00:08:23,619 --> 00:08:28,262 going to pick up some of the smaller companies A global stock 140 00:08:28,262 --> 00:08:29,004 index account. 141 00:08:29,004 --> 00:08:32,379 Or if you're in your employer's plan, chances are they have a 142 00:08:32,440 --> 00:08:36,245 target date fund or some sort of default investment. 143 00:08:36,245 --> 00:08:38,669 That's probably going to work just fine for you. 144 00:08:39,235 --> 00:08:42,544 So don't overthink it, Just do it. 145 00:08:42,544 --> 00:08:47,956 Overthink it, Just do it. 146 00:08:47,956 --> 00:08:49,399 Try not to worry about it, because study after study has 147 00:08:49,440 --> 00:08:51,003 shown that the more we look at our accounts, even in good times 148 00:08:51,003 --> 00:08:54,356 , the worse we do, because we're tempted to touch it or withdraw 149 00:08:54,356 --> 00:08:58,385 or change something up, because one of the things in our mix is 150 00:08:58,385 --> 00:09:00,176 not doing well, so we want to get out of that. 151 00:09:00,176 --> 00:09:04,500 If you've done that last year and dumped your international 152 00:09:04,561 --> 00:09:07,124 stocks, that's the best performer this year, because 153 00:09:07,163 --> 00:09:11,948 that's what markets do is they rotate around from one 154 00:09:12,048 --> 00:09:14,010 outperforming to another outperforming. 155 00:09:14,010 --> 00:09:17,543 So the future's there for you. 156 00:09:17,543 --> 00:09:18,384 Just start. 157 00:09:18,384 --> 00:09:20,960 And if you're late, if you're listening to this and you're 158 00:09:20,980 --> 00:09:23,304 like, oh Lord, Stacey, I'm over 40. 159 00:09:23,304 --> 00:09:24,548 Get started. 160 00:09:24,548 --> 00:09:28,817 The best time to start was always yesterday. 161 00:09:28,817 --> 00:09:32,203 The next best time to start is today. 162 00:09:32,203 --> 00:09:38,038 So go ahead, open that account, increase those 401k 163 00:09:38,057 --> 00:09:40,364 contributions and save your future. 164 00:09:40,364 --> 00:09:41,626 Self will thank you. 165 00:09:41,626 --> 00:09:43,696 Thanks for tuning in. 166 00:09:43,696 --> 00:09:47,019 This has been another episode of Better Financial Health in 15 167 00:09:47,019 --> 00:09:47,759 minutes or less.