Good morning, Tony kenzi are here with you once again. And here in Module Two. lesson two, we're going to focus on whether you should rely on yourself to make investment decisions or find someone you can trust to help you. And the first lesson of this module, I set the stage for you to proactively accumulate money before you retire. Going forward. Some of the lessons will give you a different visual feel as we work through them.
Instead of causing you to read word for word what I'm saying, I'll be using comments and bullet points to summarize the message I want you to hear. You'll also see images of faraway places in case travel is something you want to do when you retire. I'm using them to help you remain motivated as you work on your metal roadmap to a successful retirement, short of a winning lottery ticket or inheriting money from someone. Chances are the money you have when you retire is going to be all you have to work with and to pay your bills. It's critical you know how to grow it, preserve it and add to it as much as possible. It remains To be seen if it will be enough, all of us now have the ability to comprehensively research the internet for answers.
For the price of a computer and an internet connection, all of us have the ability, if not the skills necessary to do it all by ourselves. If you decide to go it alone, what will it cost you in terms of time and energy? And when do you get it right? One problem is that it's often difficult to put the answers you find in the right context. This course is designed to help you with that and allow you to build a better roadmap. The principal question of this lesson is, is it better to go to alone or find someone I can trust to help me?
Most of us have heard the name Bernie Madoff. He was a trusted adviser whose Ponzi scheme resulted in his clients losing an estimated $65 billion no matter how you cut it, that's a lot of money. And while some of it was recovered, my guess is most of his clients are probably not enjoying a successful retirement. It's almost certainly different from the one they envision before they met Bernie. But here's the rub, you may know exactly what to do when it comes to investing money, you may have figured out which solutions are likely to result in better outcomes. You may feel that fees can be an existential threat to your future financial well being.
What you can always bring to the table is objectivity and lack of emotion when it comes to decision making. I'm not talking about how you feel when your pile of money is growing. I'm talking about how you feel when your pile of money is not growing or it's getting smaller. The key ingredient here is the word feel. That's an emotion and when it comes to investing money, emotion invariably gets in the way. Despite my being a financial professional for years, I cannot remove my feelings when it comes to managing my own personal accounts.
What this means is that I can be far more objective with your money than I can be with my money. Even if you become an expert, chances are if it's your money, we're talking about some of your decisions. are going to be questionable and may turn out badly. Regardless of whether you plan to go it alone or get some help. A good understanding of these three investment approaches to managing money will give you a leg up. There are a lot more, but let's start with these three.
The first is passive asset management. You do some research, you develop an understanding of asset allocation, you choose some mutual funds or exchange traded funds. Create an account on a platform like Vanguard where you have access 24 seven, and you put your money to work, then you leave it alone. The second is active asset management. This is similar to passive Asset Management but with an overlay that uses performance metrics, or global economic trends, such that over predetermine intervals, you reallocate back to the original asset allocation. Or you might change the asset asset allocation mix to try and take advantage of evolving trends in the markets if there is a global recession looming, you make some defensive moves like selling some things or everything and going to cash.
And whatever is happening seems to have run its course, you make more changes. If your timing is right or at least close and you catch the trends correctly, the result will be better investment performance than simply leaving it alone. It does introduce some risk and that you can't know in advance if your changes are going to work or not. The third is tactical asset management. This involves active management but with many more asset allocation categories, especially the ability to go short. This is a tactic that when it works causes you to make money when others around you are losing money.
Tactical Asset Management done correctly will almost always result in better performance numbers than the other two. But it requires volatility in the markets to work. Hedge Funds work this way. But it's going to cost you to access cost you to get access to the skills necessary, especially if you want to see positive results, but you don't have to invest in hedge funds to get tactical asset management. There are a number of very talented groups of asset managers who do an exceptional job for their clients. If you can find them and are willing to expose your money to additional short term risk, I encourage you to go for it.
A few more questions asked as we move this forward. How do I find an advisor I can trust? How deep into the weeds Do I need to go to make it work if I decide to go it alone? Is it better to invest before tax money or after tax money? How important are fees when growing my money for retirement? The first one implies that at least some help will be a good thing.
Now you have to find someone both qualified and prepared to help you who is also a fiduciary. a fiduciary is someone bound legally morally and ethically to do what is in your best interest. This doesn't mean they don't charge for their services. It means that whatever they tell you and subsequently sell you is driven by what is in your best interest. attorneys are bound by this standard as our Doctors and Certified Public Accountants. The ideal situation is finding someone or a group of someone's who you enjoy working with, whose fees you could live with who have a skill set that implies success on your behalf.
Rules are now being changed at the national level to cause anyone involved with retirement accounts to be held to a fiduciary standard. Unfortunately, lobbyists are creating loopholes that provide exceptions. So when looking for help from a financial professional, they must answer yes, when you ask them if their relationship with you will be a fiduciary relationship, despite what's happening at the national level. case law in almost every state suggests that if an advisor says their fiduciary, the court system will hold them to that standard, but that doesn't mean their employer will also be held to that standard. So my advice here is don't try to be an expert. Instead, use the personal skills you've been learning since you were a child to decide if someone is telling you the truth or not.
You may not get it exactly right. But it will be close. Talk with this person, look them in the eye. Do you get a good feeling or a bad feeling? Are they answering your questions such that you know what they're talking about? If you're planning to allow them full access to your money, you need to have a comfort level that both allows them to do their job.
And for you to not second guess what they do? Find someone who has advised people for a number of years and has a track record. You really don't have time to learn a foreign language. And for most people, economics and finance is a foreign language. If you choose to go it alone, how deep Do you need to go? That will be answered by how much extra time and energy you have?
How much time you have before you retire? how desperate are you to grow your pile of money because the retirement you envision will be both long and expensive. So you go as deep as you have to. Another common question is whether you should invest with before tax money or after tax money. Actually, you want to do both if you can, before tax money simply means That money you invest it arrives in an account before it gets taxed by the IRS. Think of 401, K's or IRAs.
The alternative is some kind of Roth account. These get funded with money that has already been taxed. They grow with no additional income tax. And when you take it out later, there is still no income tax to pay. My preference is for you to do both participate in before tax opportunities and after tax opportunities. If you make a lot more than you need to live your life these days, there's no reason not to do both.
The IRS does impose limitations which you should follow but that you know beyond that, do what you can. We'll spend more time on this in lesson seven of this module. And don't forget to check out chapter five in my ebook, your future retirement. How important are fees when growing your money for retirement? The short answer is they're very important. Banks and brokerage companies are in business to make money.
They're going to tell you anything short of outright falsehood to persuade you to use their services. That's the free enterprise system that we live in. Sure, there are regulations. But believe me, they're going to push the envelope just as far as they can. It's up to us to understand what they're saying, and whether their answer is in our best interest. Over the years, the regulations have declared that some fees must be disclosed to the consumer, and others don't have to be disclosed.
Those are a mystery to all but a few people, but believe me, they exist. That's not to say that people or companies that add value are not entitled to compensation. It's just that you can't evaluate the results properly. However, the financial services industry is changing. What was a normal fee structure a few years ago is shrinking, and it's shrinking rapidly due to the pervasiveness of the internet. Here's a link to a blog I posted recently that talks about fees and their impact on retirement money.
You'll have to pause the video and write it down since I can't figure out how to give you an active link. On this video you're watching, you heard me mentioned Vanguard funds earlier, then Guard has an extraordinary history of good investments for which they charge low fees. There are funds and fund families that charge lower fees. But it's hard to go wrong when you work with Vanguard. What else is there to think about? If you open an employer sponsored retirement account, and your employer is willing to match some of your before tax contributions, you should do this to the extent possible.
And here's why. When you withdraw money from these accounts, after you retire, you'll have to pay income taxes on the amount you withdraw. That's how the government pays its bills. If your employer contribute a share of its money to your account, you can now thank them again, since you can now use their money to pay at least some of or perhaps all of the taxes you owe. All of us should assume that tax rates will increase over time. With the new tax laws.
They're probably as low now Is there ever going to be my gut tells me that their current effort to remedy the tax policy using trickle down economics to pay off national debt is a myth. Conservative retirement planners like myself assume tax rates will increase. Right now, if you're still some time away from retirement, put as much away as you think you can, and then add a little bit more. You'll be glad you did. before you move on to Module Two, lesson three. This picture is a contemporary picture of the Eiffel Tower, perhaps from the same bridge when my father took the picture of me and my mother that I included in slide one of this lesson, going back to Paris is on my bucket list of things I must do before I die.