Simple beats complex
Show notes:
This is the Help Me Retire Podcast… with your host… Mike Brown… Senior Wealth Advisor with Raymond James Financial Services… and head of Brown Family Wealth Advisors…
Mike is the best-selling author of Your Way to True Wealth: How to Make It Happen, Make It Last, and Make It Matter…
He and his team have been helping clients pursue their dreams of financial independence for the past 30 years… and in the Help Me Retire Podcast… he’ll share his best ideas with you…
And now… here’s Mike…
Ever had someone try to explain something to you… who left you more confused and bewildered than when they started?
I mean those long… winding… confusing explanations… full of big words you’ve never heard?
Well, you can bet they’re either bad at explaining things… they don’t really know what they’re talking about… or they’re trying to sell you something…
Worse yet… it might be all three!
But a lot of things in life… especially the things that really matter… are pretty simple…
And in this episode of Help Me Retire… I’ll give you some examples of simple things… simple ideas… that could make a huge difference in your financial life…
You might be trying to make your money grow right now… building wealth to reach a point one day when you no longer have to work for money…
Or you could be trying to make your wealth last for as long as you need it to…
Or… you could be making the transition to working for money… into making money work for you…
Wherever you are on the journey to what we call… True Wealth… we can help you…
Weekly ideas in our free weekly e-letter: Wealth and Wisdom
For specific advice on how to retire… visit our educational website… helpmeretirepod.com…
And to learn more about Brown Family Wealth Advisors… visit our home page at brownfwa.com…
You can find back issues of Wealth and Wisdom… recordings of the quarterly webinars we put on for our clients…
We’re also posting new material every week on Facebook and LinkedIn…
We’ve got lots of ways to help you retire…
There’s a lighthouse on the coast of North Carolina… called Cape Lookout…
It’s painted with a distinctive pattern of giant diamonds… half the diamonds are black… and half are white…
And each of those diamonds stretches halfway around the lighthouse…
Sort of like a big argyle sock… soaring 163-feet into the sky… keeping ships safe off North Carolina’s jagged coast for more than a hundred years…
Cape Lookout Lighthouse is the only one in the country painted like that… in fact I don’t know of another one anywhere in the world… it’s unique…
I always assumed it was just a random design… something easy to spot from the sea… and it is…
But I’ve since learned the unique paint job was anything but random… it was very intentional…
You see… those diamonds all happen to be perfectly lined up with the compass…
The outside points of the black diamonds are lined up to the north and south… and the white diamonds… east and west…
That means if you’re trying to find your way around this dangerous stretch of coastline… whether that beacon is flashing or not… if you see black diamonds on the Lighthouse… you know you’re heading north or south…
If you see white diamonds… you’re heading east or west… either toward the shore… or out to sea…
And that’s a pretty important thing to know when you’re trying to navigate through what they call the Graveyard of the Atlantic…
While this might sound new and innovative… the Cape Lookout Lighthouse has been painted this way since 1873… more than a century-and-a-half…
Long before GPS… long before the internet… even well before radar and sonar…
A low-tech… ingenious… and SIMPLE… way to keep ships on course…
Leonardo da Vinci once said… “Simplicity is the ultimate form of sophistication”
And I think that’s particularly true when it comes to investing and personal finance…
Some people what to make it more complicated than it really is… because… possibly… they think it makes them sound smarter than you…
It could be… that they don’t understand what they’re trying to explain, either…
And again… it could be because they’re trying to sell you something…
Now… I’m not suggesting that investing is easy…
It takes time…
It takes discipline…
And it requires understanding some rules… rules that are as timeless as the tides…
But they are simple rules… rules almost anyone can understand and master…
Let me give you some examples…
Unless you were born into wealth… or married your way into it… or win the lottery… the only way you’re going to achieve wealth is by following the first rule of finance… which is…
Spend less than you earn…
Every time you get paid… set aside 10- or 15-percent of it… then find a way to live on the rest…
Don’t spend money you haven’t earned yet… because it means you’ll be taking on debt…
Money that you save… and put to work making more money… starts compounding for you…
Debt… on the other hand… is money compounding against you…
The more you have… the harder it works… and the harder it is to get rid of…
When it comes to building wealth… getting you to a point where you no longer need to work for money… the key to wealth is a very simple rule…
Spend less than you earn…
Now… with that money you’re saving… it’s important to get it working for you…
Make sure some of it is going into a retirement account… like a 401-k…
And here’s a simple rule… if your employer matches any of your contribution… put in at least enough of your own money to qualify for the full employer match…
A 401-k match is free money… it doesn’t get any simpler than that…
And you can’t beat the return on free money…
401-ks… 403-bs… IRAs… those are all tax-deferred ways to save for retirement…
Which brings up another simple idea… the less you have to pay the government in taxes… the more your money stays working for you…
The dollars you would have paid Uncle Sam stay busy making more dollars…
Even if you wind up paying taxes on every dollar you save when you reach retirement age…
All those years of tax-deferred compounding will likely more than make up for the taxes you’ll owe years down the road…
Accountants like to say that tax-deferred beats taxable… and tax-free beats them both…
If you have the opportunity to save money in a Roth IRA or Roth 401-k… take advantage of it…
The younger you are… the more sense it makes…
If you follow the simple rules of Roth accounts… you’ll get all those years… those decades perhaps… of tax-deferred compounding…
And then you’ll have access to a pool of money when you retire… all tax-free…
And while we’re talking about taxes… a couple more simple ideas to consider with your IRAs…
You don’t necessarily need to be working to contribute…
If your spouse has an income… you can have what’s called a spousal IRA… and you can put as much as… or even more than… your working spouse… as long as the total contribution is less than your household income…
That means you can literally double up on your retirement savings…
And one quick investment tip for IRAs and Roth IRAs…
Don’t put tax-free investments inside an IRA…
They typically pay less than taxable investments…
And you’re going to wind up paying taxes on that tax-free interest when you eventually take the money out…
When it comes to spending your money… which is what you’ll be doing with most of the money you earn over your lifetime…
Try to buy things that increase in value over time… or add value to your life in some other way…
Look for opportunities to buy things that pay for themselves…
I’ll give you an example…
You can spend less than 50-dollars for an insulated jacket to go around your water heater…
From the day you put it on… it’s going to start costing you less every day to make hot water…
So much less… that you’ll probably make that 50-dollars back in less than a year…
I found that out right after Tammy and I got married… and I told her I wish we had two water heaters…
Our little investment literally paid for itself… and there are dozens of other things you can buy that can do the same thing…
Start thinking about that…
Okay… today… we’re looking for the lighthouse… those simple rules… the simple truths about making money grow… making money last…
When the skies get dark… and the waves get high… what are the simple, basic things we need to remember… and focus on… to see us through…
Here’s one… and it’s a big one…
And it’s an idea you hardly hear anyone talking about on CNBC or the Wall Street Journal…
And yet… I think it’s the most important thing you can know about investing…
The folks in the financial media focus on markets… and earnings reports… and GDP… interest rates… and inflation…
As if focusing on those things are going to make a big difference when it comes to reaching your financial goals…
Do you know what makes more of a difference than all those things… the absolute key to your success?
Another simple idea… here it comes…
It’s you…
It’s not whether you own the top-performing mutual fund from last year…
It’s what you do with that mutual fund… and your other investments… the next time the market drops by a third…
Are you going to hit the panic button and sell everything?
Are you going to be able to sit tight… even while everybody’s telling you it’s going to be really bad this time?
You better get out while you can…
Or is it possible you’ll re-examine your long-term financial goals…
and re-visit your long-term plan…
and then take another hard look at how your money is invested…
and keep buying more shares at low prices?
I’m telling you… that’s the key to the whole thing…
It’s not investment performance that’ll bring you closer to True Wealth…
It’s your own behavior…
If you don’t own those investments when the market recovers… you won’t get those long-term returns…
If you change course every time the wind changes… you’re never going to make it to the shore…
You’ll be stuck at sea… or working at your job… for the rest of your life…
Or you might even crash into the rocks…
Remember this simple truth…
It’s not as much about how your investments behave… as how you do…
I’ve spent a lot of time in this episode talking about building wealth… because that’s where these simple ideas have the biggest impact…
Learn these lessons early… and they will serve you for life…
But I want to spend some time now… with those of you starting the transition into retirement…
Or maybe you’re already retired… and want to stay that way…
You’ve been following some of these simple rules and guidelines all your life… and now you want to make sure your money lasts as long as you do… and perhaps even beyond…
There are some more eternal truths you need to be aware of in addition to everything we’ve talked about already today…
One has to do with your definition of money itself…
A lot of people approaching retirement tell me… I need to keep this money safe now…
I want to preserve my… principal…
They think of their wealth as how many dollars they’ve accumulated…
Instead of what those dollars will buy…
See… if you think of wealth in those terms… you’ll do whatever you have to do to preserve those dollars…
You can keep your money safe by locking it away somewhere… in your mattress… or in a coffee can in your back yard…
But the longer it stays there… the less it will buy…
Inflation will eat away at it…
So… we’ve got to think of money not as how many dollars you have… not as principal…
But what those dollars will buy… their purchasing power…
The first objective of retirees, then… has to be to earn a rate of return at least the same as the rate of inflation… if not a little higher…
In fact… if you plan to withdraw and spend some of that money… you’ll need investments that earn even more than that over time…
If you lock yourself into this mindset of… I have to protect my principal… I have to keep all this money safe…
Then you’ll lock yourself into low returns…
And as your cost-of-living creeps up in retirement… you’ll find yourself having to take out a little extra each year…
And the more you withdraw… the fewer dollars are left earning those low returns…
Meaning you’ll have to take out even more of your principal next year…
So, in other words… you’ll run out of money one day… but at least you’ll go broke… safely…
Here’s a better alternative… in my opinion…
Let’s think of the ultimate goal in retirement not to be protecting your principal… but in preserving your purchasing power…
Let’s focus on the income your investments can produce… that’s the money you want to spend…
And avoid selling the investments themselves for spending money…
If you’re able to live off the income your investments produce… you won’t have to think about the price of those investments as much… or how the market is doing…
Let’s make sure that income is increasing over time faster than inflation… faster than your cost-of-living…
In retirement… we’re looking for a stream of income that you can’t outlive…
A stream that keeps rising over time…
Now… can you think of an investment that pays income… has historically increased that income faster than inflation… and also kept growing in value… not every year… but over time?
Just like lighthouses painted in black and white diamonds… I can think of only one investment that fits the bill…
It’s equities…
Businesses… that have successfully navigated rough seas and continued to grow…
Companies that share their success with their owners… the investors who own their shares…
In 1950… the Cape Lookout Lighthouse went fully automated…
The last lighthouse keepers retired and went home…
But the beacon still flashes… and the giant black and white diamonds are still there…
From the end of that year… 1950… through the end of 2023…
The cost of living in the United States is almost 12-times higher…
But according to Standard & Poor’s… dividends paid by companies in the S&P 500 are nearly 48-times higher…
Profits reported by those companies are nearly 68-times higher…
And the price of the index itself… is more than 200-times higher…
History doesn’t have to repeat itself…
There’s no guarantee that stock dividends will continue to outpace inflation…
Or that corporate profits or stock prices will keep growing at the same pace…
We can argue about which investment strategy will create wealth the fastest…
Or which will help us make it last the longest…
But the timeless ideas… the SIMPLEST ideas… will probably remain a beacon for financial success… for as long as you and I need them to…
That’ll wrap us up for this episode of the Help Me Retire podcast…
I hope this has been a good investment of your time…
And I look forward to talking with you again sometime soon….
Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC.
Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Brown Family Wealth Advisors is not a registered broker/dealer and is independent of Raymond James Financial Services.
Any opinions are those of Mike Brown and Brown Family Wealth Advisors and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a recommendation. There is no guarantee that these statements or opinions will prove to be correct. Investing involves risk, and you may incur a profit or a loss regardless of the strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
