The Advantages of Planning for Retirement at an Early Age

March 5, 2021

The Advantages of Planning for Retirement at an Early Age with Jason Newcomer

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The Advantages of Planning for Retirement at an Early Age Show Notes

Retirement planning isn’t just for people who are near retirement or in retirement already. If you’re in your 20s or 30s, you’re in a prime position to build a great foundation to experience financial independence and retire younger.

Joining me today is Jason Newcomer, CERTIFIED FINANCIAL PLANNER™ and advisor here at Modern Wealth Management. In this episode, we’ll share a list of great books geared towards young adults to learn more about the importance of retirement planning early on, we outline the fundamentals that they should be thinking about now, and we’ll share valuable information about the platform we’ve built at Barber Financial to help them get a head start on their retirement planning.

In this podcast interview, you’ll learn:

  • How the massive gaps that still exist comes to financial literacy in our education system can have significant impacts on young peoples’ futures.
  • Why CNBC, Fox Business, and other outlets aren’t actually geared toward people outside of the financial industry.
  • Tools you can use to get a grip on your cash flow, budgeting, and forecasting future potential expenses.
  • Advice for anyone starting a job with a retirement plan or 401(k) match.
  • Why you should never carry a balance on your credit cards – and how to prevent this from happening.
  • Why taking 401(k) withdrawals before retirement should be seen as a last resort.
  • How to start investing – and why you don’t need to obsess over the day-to-day or participate in high-risk, speculative stocks or cryptocurrency to generate wealth.

Inspiring Quote

  • “If you absolutely need to feel like you’ve got to participate in picking individual stocks or cryptocurrencies or any speculative investment, again, limit that exposure.” – Jason Newcomer
  • “There are certainly some points where debt, when used properly, is a very powerful tool, although those same tools can really hurt you if you’re not aware of how they work or really what you’re getting yourself into.” – Jason Newcomer

Interview Resources

Interview Transcript

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[00:00:08] Dean Barber: Welcome to The Guided Retirement Show. I’m your host, Dean Barber. Today back, Jason Newcomer, CERTIFIED FINANCIAL PLANNER™, enrolled agent. Jason is going to bring something a little bit different to The Guided Retirement Show today. Instead of talking strictly about those of you that are near retirement or in retirement, we want to take the opportunity to educate our younger audience, the 20, 30, and so on, year olds.

And Jason is going to be walking through for you some of the very basic things that you need to be starting with in order to build a great foundation so that you can actually experience that ultimate financial independence and retirement at a younger age. So, those of you that are near retirement or in retirement, we encourage you to share this podcast with your children, share this podcast with your grandchildren. Let’s get the word out because the more education we can give to this younger generation, the more financial independence they’re going to have and the better financial life they’re going to have. Please enjoy my interview with Jason Newcomer, CERTIFIED FINANCIAL PLANNER™.


[00:01:09] Dean Barber: Jason Newcomer, welcome back to The Guided Retirement Show. Obviously, a CERTIFIED FINANCIAL PLANNER™, advisor at Modern Wealth Management. And, Jason, we want to do something different today on The Guided Retirement Show, and the idea here is that we want to give the younger part of our population people that are just getting out of college, people that are maybe just getting married, and starting a family, we want to give them a head start by providing a very specific list of things that they need to be thinking about.

You’ve got some great books out there that you’re going to encourage people to read. And we actually have a platform set up at Modern Wealth Management to help the younger population really get a head start. I think the earlier you start, the better chance you have of actually fulfilling a great retirement and maybe at a time younger than what you thought. So, great to have you here, CERTIFIED FINANCIAL PLANNER™. Jason, tell your story a little bit about your time in the financial services industry, kind of where you came from, and why this particular subject is near and dear to your heart.

[00:02:17] Jason Newcomer: Yeah, sure. Thanks for having me back on the podcast. It’s good to be back on here. Yeah. I have been working with Modern Wealth Management. Now, I’m in my 11th year in the business, 11 years removed from college, which is wild to think. My wife was just asking me, “When’s our 20th high school reunion?” and I was like, “Okay, that’s really coming up.”

[00:02:40] Dean Barber: Or until your 50th when it comes around.

[00:02:44] Jason Newcomer: But, yeah, I went down to Missouri State University in Springfield, Missouri, studied finance, did some internships with Modern Wealth Management during my college tenure there, and then started here back in May of 2010. So, obviously, I have a passion for financial planning coming straight out of college, working for Modern Wealth Management, working with the financial advising team, and then ultimately becoming a financial planner here, getting the CFP designation, becoming a CERTIFIED FINANCIAL PLANNER™, and really getting plugged into the community here.

[00:03:23] Dean Barber: You know, Jason, it’s really interesting with a person like you entering the financial industry at such a young age and straight out of college, and I did the same thing, 21 years old in the financial services industry. I was thinking something at that time and I want to get your impression here and see if you were maybe thinking along the same lines that I was but I thought, you know, the things that I’m going to learn, the rules that I’m going to learn, the techniques that I’m going to learn are going to ensure my financial success moving forward.

Did that thought ever cross your mind about you were really bringing in so much information? You were learning so many things that really you and I think about today is just fundamental. It’s almost like, yeah, who doesn’t know that? But there is a lot that you and I know that a lot of people don’t, which is why our careers and what we do for people is so important.

[00:04:22] Jason Newcomer: Yeah. I think so. I think it’s kind of everyone’s human nature that you spend a lot of time in your own bubbles. You kind of develop your own social circles. And for us, we spend so much time at work talking about these things, day in and day out, that when you have a conversation with someone outside of your immediate workgroup of peers, sometimes it can be eye-opening to say, “Well, wow, there’s a big gap in education when it comes to financial planning, financial education.” It starts in schools. There certainly may be some movements that our education system could have when it comes to teaching a lot of financial literacy, financial education. It’s out there. It’s just maybe not as developed as we’d like to see.

[00:05:11] Dean Barber: Yeah. You know, it’s interesting. My oldest daughter, she’s in her, I think, 9th or 10th year in her career, maybe 11th year, somewhere around you, and she’s really vented to me several times how poor the education was around simple financial things, debt, budgeting, home purchases, what should I do in my 401(k)? Should I use a Roth? Should I do traditional? You know, what’s the employer match mean? What does vesting mean?

These terms that you and I use every single day, people they’re getting asked to fill out these forms and make decisions that can have long-lasting effects, either positive or negative to their financial future, and the financial literacy just isn’t there. That’s why we thought it was so critical to do this podcast, not necessarily for the 50-plus-year-old that’s out there that’s already been successful and save some money and now is getting kind of staring down the aisle of retirement but we want to start reaching out to the people that are younger so that we can give them a much quicker head start.

[00:06:20] Jason Newcomer: Yeah. That’s well said. When we were talking about throwing around ideas for this podcast and what’s our topic going to be and we talked about, “Well, what if we talk about something different, something totally different from our previous episodes, talking to maybe a younger group of people, kind of the next generation?”

To me, when the media, I guess if you were to turn on CNBC or something like that or Fox Business, there’s a lot of talk about stocks, about markets, about investing but I think in order to have a good foundation for your financial plan, you need to start with the basics. And that’s why when we’re kind of coming out with the plan for this episode, I think it starts with educating yourself and taking responsibility in your own financial plan. No one’s going to do it for you. So, no one cares more about your financial future than yourself.

[00:07:19] Dean Barber: All right. So, let’s talk about some of the education things that are out there, Jason. Obviously, there is a lot of stuff written. By the way, I agree with you wholeheartedly on CNBC and Fox Business and that and those stations are more geared toward the financial industry. They’re geared for people like you and I. They speak in a language that most people find foreign. So, where do you suggest that our younger generation start when it comes to getting the education that they need on financial planning?

[00:07:54] Jason Newcomer: Well, I think all they need to do is buy Bitcoin, right? No.

[00:07:59] Dean Barber: That’s it. Easy.

[00:08:00] Jason Newcomer: And then you’re done. Yeah. No. Educating yourself, the good thing about the day and age that we live in today is all of this information, there’s so much free information that’s out there and that can have its drawbacks but at the same time, there are a lot of good sources out there that if you’re interested in learning about financial planning, which I think everybody should take an interest in their own financial future, you know, I’d start with maybe some of the free resources that you can find, like on YouTube or for example, this podcast is a great resource of information, that shameless plug for our own podcast.

[00:08:37] Dean Barber: I would agree with you, though. It is good.

[00:08:38] Jason Newcomer: In addition to those things, there are books. And when I was thinking about maybe the top three books that as a young person studying this, before I became a financial planner or even in my early years as a financial planner, wanting to learn more about things that pertain to my situation as someone in my 20s, no longer in my 20s, but at the time, the very first book on personal finance that I remember reading was The Richest Man in Babylon.

And a lot of people will know that book. It’s I think 95 years old, maybe 100 years old at this point in time but a lot of the same concepts that are discussed in that book, pay yourself first. You know, that’s the biggest takeaway is just make sure that your expenses don’t exceed your income. It’s kind of the basic foundation on which you build a financial plan. So, The Richest Man in Babylon is probably a book that I would read and maybe we can have links to these books in the show notes on our page here.

[00:09:43] Dean Barber: Absolutely. We’ll do that for sure.

[00:09:46] Jason Newcomer: Maybe a couple of other books. Obviously, most people who have some interest in finance may be familiar with the name Dave Ramsey. There are some things that there are kind of like the hardcore Dave Ramsey fanatics, and then there are people on the other side of the spectrum that say, “Oh no, you can’t listen to anything that Dave Ramsey says,” but he has written a book that’s a bestseller that’s got a lot of good information and it’s called The Total Money Makeover.

Another book by Ramit Sethi, I believe I said his name right, is I Will Teach You To Be Rich. I think if you start with those three books and spend maybe $30, $40 on those three books, probably some of the best money that you’ve spent in your life.

[00:10:30] Dean Barber: You know, one of the issues I think that a lot of people have and I don’t think this is even just with the younger generation, this goes into people that you and I are coaching to get into retirement and through retirement is this whole idea of cash flow and budgeting. You know, that, again, for you and me it’s common sense. All right. You make X, you spend Y, Y always has to be less than X, and then you save the difference, right, or you pay yourself first and then you know how much you have to spend.

And if you spend everything else that you have left, it’s okay because you know you’ve already saved. But this idea of cash flow and budgeting, I think a lot of people miss it and they miss it in terms of forecasting future potential expenses, that may not be part of what they consider their necessary expenses on a monthly basis, like a mortgage or a rent payment or an insurance payment or something like that.

So, what do you suggest for people to really get a grip on their budgeting process and following a budgeting process? And then is there any coaching for young couples as they begin to try to budget together or to merge their different, maybe different belief systems about money together.

[00:11:50] Jason Newcomer: I think to that point, open and honest communication and setting kind of your own beliefs on the table and saying, “This is how I think and feel about money. This is where my money comes from and where my money goes and being honest with your partner about where that money goes,” I think we could have a whole discussion about joining finances. But as far as cash flow and budgeting, I agree with you. It’s definitely an underserved part of financial planning. Most people just want to talk about what’s your portfolio look like? How are your stocks doing?

But really, again, driving back to the foundation of your financial plan, you’ve got to know where is the money coming from? Where is the money supposed to be going? I’d say if you’re first getting started, take a look at the last two or three months of your bank account statements or if you’ve got credit cards that you put expenses on, take a look at the credit card statements. And the credit card companies do a really good job of monthly reporting and kind of categorizing where is your money going.

So, I first start with some self-assessment there before I get too worried about trying to figure out what financial planning tools or calculators do I need to use online, get familiar with your own situation first. From there, you can start to determine is money going to the right places and the right amounts? And there are a lot of different guidelines if you read those books that we mentioned earlier on the episode.

Or if you go online, there’s the 50-30-20 rule which says that 50% of your expenses should go towards your needs, 30% should go towards your wants, and 20% should go towards saving or paying down debt and various different approaches. But that there’s a 60% rule that was coined by I think Richard Jenkins who’s the editor-in-chief of MSN Money, their zero-based budgeting. Regardless of which one you think is right for you, probably pick one of those and try and stick with it for a little bit.

[00:13:52] Jason Newcomer: A lot of good tools online that you can use. A lot of people might be familiar with who was purchased by Intuit I think recently a few years ago. A newer one that we’ve heard a lot about is, it’s I think you have to pay for that one as well. But if you’re using a budget and using one of those tools to track your expenses, whether it’s your credit card statements or one of those websites, I think you’re taking a big step in the right direction.

[00:14:24] Dean Barber: Jason, before people start budgeting, is that kind of a basic thing or is it necessary, in your opinion, to say, “All right, before I start budgeting, I need to set out some of my longer term goals?” I mean, I know this idea of saving 20% or paying yourself first. It’s great. Are you just doing that initially to build up your emergency fund or your cash reserves? Or are you doing that and saying, “Okay. This is part of my longer-term, my intermediate-term plan. Is my 401(k) contribution a part of that 20% that I’m saving?” And I know I ask a lot of questions there because there are all these different things that are thrown at a person at their younger years and sometimes it’s information overload.

[00:15:06] Jason Newcomer: Yeah. You can kind of feel like everyone’s when you start talking about financial planning for young people, they’re like, “All right. Where do I start?” It’s a really good question and sometimes it can feel overwhelming because you’re tasked with getting your financial life in order, which is no small feat in itself. So, where I would probably start is setting up an emergency fund, making sure that you’ve got money going into this emergency fund, which is ideally a savings account separate from your checking account.

So, I guess that’s where I would start, is opening up a checking account and a savings account and really treating those as two separate accounts. The savings account is where you’ll put money in to fund this emergency fund, get that up to, of course, by now you’ve started with the cash flow and budgeting that we mentioned before. You should have a good idea of what does it cost you to live a normal month. So, month-to-month, what are your living expenses?

Start to aim for maybe three months’ worth of living expenses in that emergency fund before you start to fund these other goals that you might have. So, whether that’s, “Hey, I do want to move out of my folks’ home and buy my own house. I want to buy a car, I want to have a wedding, and  I want to get married,” those are things that can come after the emergency fund. You’ve really got to make sure that that’s there initially.

[00:16:30] Dean Barber: Jason, let’s talk about this idea of and this is going to go along the same budgeting item of building the emergency funds, and by the way, I totally agree with your assessment there, but let’s go along with this idea here for just a second that most companies now have what they call an opt-out provision of their 401(k). So, when you go to work and you get your first job, you’re going to be automatically enrolled in that 401(k) and you have to opt-out if you don’t want to be in it.

And most companies, if you don’t pay attention to what’s going on, they’re going to force your money into one of their target-date retirement funds, and then there is hopefully some sort of match to that. So, what’s your advice for a person who is starting to work for a company? They haven’t yet built that three months’ worth of savings. Do they opt out of the 401(k) if indeed there is a match, or do they put that 401(k) contribution there and look at that as part of their budget item and then still try to start building that emergency fund outside of that?

[00:17:37] Jason Newcomer: I would say, and you’ll get a lot of different opinions on this, but my personal belief is that if there is a 401(k) match, make sure that you contribute enough to your 401(k) to get that match. Beyond that, then I would start the emergency fund. Well, I guess let me back that up. I think that it’s important to contribute to the 401(k) if there is an employer match, contribute up to that 401(k) match limit, and then from there, I would go back to the emergency fund, and if it was at three months before you got to…

[00:18:19] Dean Barber: Yeah. Okay. I get what you’re saying. And by the way, we did a great podcast right here on The Guided Retirement Show, Episodes 1 and 2 with one of our in-house CPA. She’s also a partner of Modern Wealth Management, JoAnn Huber, where we talk about should you do Roth or should you do traditional? That’s not something you and I are going to get in on today’s program, Jason, but I would encourage our listeners to go back and listen to Episode 1 and Episode 2 because we talk about the difference between the Roth and the traditional and whether a person should use the Roth or the traditional and we go through all kinds of ages and things like that.

Okay. So, I love your idea. Let me explain this match thing for people. For example, your company says, “Well, we match 50% of the first 6% of your contributions. That means if you put in 6%, a company is going to match 50% of your contribution. You put in a dollar, they’re putting in $0.50 all the way up to 6% of your pay. And that’s what you’re saying is if a company you go to work for has that, then you’re crazy not to put in that 6% because it’s free money over and above that.

Now, your 401(k) plans, they’re going to have a vesting schedule. You’re going to have to work there for a period of time to be able to keep that money. You need to understand what that is and how that works. That’s another conversation. But in most cases, that’s free money. It’s going to be yours for the rest of your life and then you make the decision of whether you do the Roth or whether you do the traditional and I encourage you go back and listen to Episode 1 and 2 to talk about that. I want to back up for just a minute, though, Jason, and come away from the cash reserves because I think we missed something.

I think the foundation of that financial plan has to be proper risk management. And when I say risk management, I mean, we got to make sure that we’ve got our bases covered from an insurance perspective so that if something bad happens, we’re not forced to dip into our funds, that we’re actually using the insurance companies to save us from something that would occur in some sort of a catastrophic illness or some sort of a loss or whether it’s a car accident, whether something that happens and you need to have renter’s insurance, you get broken into or something like that.

[00:20:31] Dean Barber: Health insurance is a big key there. If you don’t have the right insurances across the board as a baseline and something happens, it can disrupt the rest of your plan.

[00:20:41] Jason Newcomer: Absolutely. And I think that it’s worth mentioning there should be at least an annual review of your insurance policies like your auto insurance, your renter’s policy. Those are things that should be looked at annually to determine do you have enough coverage and are you getting the best price for that coverage? I think too many times people focus on what am I paying for the coverage or not? Do I have appropriate coverage for my needs at this point?

[00:21:10] Dean Barber: Yeah, and I would say that goes even to life insurance, disability insurance, all those types of things. I mean, I can’t tell you the number of people that I’ve met with in my 34 years in this industry that we’ll ask to take a look at their insurance policies and they’ll bring a 30-year-old insurance policy that the letters are sticking to the envelope as you try to peel the thing apart. And that policy is something that should have been reviewed years ago and it’s probably something that’s totally out of date, it’s not needed anymore, and there’s wasted money going on there. So, I love the idea of those regular reviews.

So, once we know that we’ve got our cash reserves in place, we’ve started to take advantage of the 401(k) match, that that’s kind of a forced, systematic savings, a lot of people today, Jason, are starting their early years with debt and a lot of that is college debt. And so, how do you address the debt issue? Do I start paying my debt off before I actually start saving? Or do I still need to get those cash reserves and then focus on getting my debt paid off?

[00:22:23] Jason Newcomer: Yeah. I think the order here and, again, there will be differing opinions on this but, to me, the order here is three months emergency fund, at which point you start to take advantage of the 401(k) match. And once you’ve got up to that 401(k) match, then that portion of your budget, whether it was the 20% from the 50-30-20 rule or if it’s 10%, whatever you’re determining is going to go towards savings or paying down debt, I think at that point in time, you need to take the debt on a case-by-case basis and there will be some people that absolutely can’t sleep knowing that they have college loans or credit card debt.

And those are really two totally different things but just the fact that they’ve got debt and they owe someone, they’re not going to focus so much on the savings as they are about paying down that debt. I think you need to look at the interest rate and what was the debt from. If it’s a student loan, maybe you’ve got low-interest rates or deferred interest.

Maybe you can continue to make the minimum payments on those if it’s consumer debt, like credit card, where you’re paying 15% to 20% interest rate, yeah, I think you need to be aggressive with paying that down before you focus too much on socking away another percent or 2% into your 401(k) plan.

[00:23:39] Dean Barber: Jason, can you and I just say that we 100% agree that nobody unless you have some wildly extenuating circumstances, should ever carry a balance on their credit card?

[00:23:52] Jason Newcomer: Absolutely. I think if there’s nothing else that’s taken away from this but unfortunately, the reality is I think something like 70% of Americans have a balance on a credit card.

[00:24:03] Dean Barber: Which is insane to me. And what that tells me is that they miss the very first part of what we talked about today, and that is the general budgeting and setting up your cash reserves, right? So, if you didn’t start with the budgeting part of it and you have credit card debt, that means you overspent. You spent more than what you earned.

I agree that we live in this I call it a drive-through society mentality where we want everything and we want it now and we don’t want to wait, and it’s so easy for especially college students they get offers in the mail “Take this credit card,” and the next thing you know, you’ve got $4,000 or $5,000, $6,000 in debt and you’re getting charged 20% interest on it and it becomes an insidious type situation where it’s very, very difficult to get out of this. I would say just never carry a balance on that credit card.

[00:25:00] Jason Newcomer: Absolutely. Yeah. If you’ve got a balance on a credit card, if you’re listening to this podcast thinking where should I start, and you’ve got the balance on the credit card, I’d say make sure you’ve got the emergency fund first. That’s most important because if something happens to your job, for example, you need to be able to make your mortgage payment or your rent payment. You need to be able to keep the lights on. So, having that money aside in your emergency fund isn’t for a trip that’s coming up, for example. It’s literally for emergencies.

Once that’s taken care of and then maybe if you’ve got the 401(k) with the employer match, take advantage of that but then I’d say absolutely if there is a credit card balance, get that paid down as quickly as possible. And sometimes it’s worth making a phone call to the credit card company saying, “Hey, I really want to get this debt pay down. Is there anything you can do to help me out with my APR, my interest rate that you’re charging me? Can you lower that or can you reduce that or can you waive certain fees?” And sometimes the card companies will work with you on that.

[00:26:00] Dean Barber: And I use a credit card every single month and I use the credit card for either a cashback deal or for points for airline travel but 100% of the time that credit card gets paid off at the end of each month. So, in other words, I don’t put more on that credit card than what’s in my budget and I know you do the same thing and we coach everybody to do exactly the same thing. So, you could take advantage of some of the things that the credit cards do in order to understand why would the credit cards offer this?

You have to go back and understand this would be a whole another program of how these credit card companies are making money and what they charge the actual retailer in order to process the transactions using those credit cards. And then you can come back to the equation of why in the heck are the banks making so much money? And then you will have your answer. It’s a convenience, but the credit card companies in the banks, which are where the credit cards come from, they make a boatload of money on these things, but they shouldn’t be from you paying interest on those credit cards.

All right, Jason, we’re going to jump now more to the 401(k) and one of the worst pieces of advice that I see coming from employers as people are signing up for their 401(k) plans is, “Hey, you know what? You should go ahead and start putting money in here. And if you need it, you can take money out for a first-time home purchase. You can take money out in the form of a loan. You’ll be paying yourself back interest.” No.

I say no, no, no, no, no. Do not do that. Your 401(k) plan is your money for 59 1/2 or older. That is your retirement fund. So, don’t ever think about money that’s going into that 401(k) as something that you can go get to in case of emergencies. Once you do it once, you’re going to do it again and you’re going to do it again and you’re going to do it again, and you’re going to cannibalize your ability to ever get to have financial independence or that security in retirement. What are your thoughts on that, Jason?

[00:28:05] Jason Newcomer: Yeah. It should absolutely be used as a last resort before ever tapping into a 401(k) early for even if it’s a first-time home purchase. That’s something that is allowed up to a certain dollar amount. I think it’s $10,000. It’s a last resort. Before you do that, I think you need to look at your income and your expenses and say, “Is this something that I can save for or maybe cut back my expenses and maybe push this goal out a year or a certain amount of time in order to give yourself more time to save for that?” Even maybe find a second job.

Do some freelance work. Talk to family members. See if you can get a loan through there. But touching the 401(k) early for something that’s not retirement-related is absolutely kind of a, yeah, it might be allowed. There may be certain ways that you can get access to it early, but you’re robbing from your future self.

[00:29:03] Dean Barber: Yeah. Again, it’s one of those things, I think, that was used early on with we try to get more people to enroll in the 401(k) plans as a way to say, “Well, don’t think that this money’s gone forever because it’s really not. You can use it for these things.” And our advice as financial planners is don’t do that. This is your future money. This is your set it, put it away, and forget about it. Now, that’s not saying don’t manage it or don’t understand what the investment is, but don’t plan on touching that for years and years and years and years. This is for when you stop working, not for college education or anything like that.

[00:29:41] Jason Newcomer: Right.

[00:29:43] Dean Barber: All right, Jason, let’s go on to prioritizing the shorter-term goals. And this is where people sometimes have to have a reality check. And a lot of times I said earlier, we live in this drive-through society mentality where everybody wants everything. They want it now, they want it quick, they want it to be cheap, and they want it to be easy. But sometimes in life we have to prioritize things and we can’t always have everything that we want.

And we have to say, okay, what are the most important things? And I think we’ve got to get back again to this dialog with a significant other. If you’re married, if you’re dating someone that you plan on having a long-term relationship or even if you’re single, this prioritization idea of what are the most pressing things and what are the things that I want, sit down, and go through those things, prioritize, and what’s the highest priority? What’s the second-highest priority? Because chances are, you’re not going to be able to do it all.

[00:30:45] Jason Newcomer: Right. Yeah. And again, that’s just sitting down that part of your budget that goes towards these intermediate or long-term goals, I think that’s part of the savings part. That’s not part of the 30% if you’re using that 50-30-20 budget. The short intermediate-term, long-term goals have a separate savings account, maybe even like a sub-savings account there. And some banks will do this for you. They’ll allow you to kind of have multiple sub-accounts under your main savings account but I think if you’re figuring, for example, I want to buy a house and I want to put down 20% on this house, I’d like to be in this house in five years, ten years.

Figure out what your budget for that house is, calculate how much you’re going to need for that down payment, and figure out how many months do I have to go before I need that down payment available. And then you can sort of plan out how much of my paycheck each pay period or each month needs to go into that sub-savings account in order for me to reach my goals. And sometimes there will be some give and take. That’s life. Not all of us can have everything that we want because money is a finite supply for many of us, for most of us.

[00:31:56] Dean Barber: Yeah. So, I think you’re spot on here. Let’s move on now, Jason, to when you do get to start saving and investing. And investing is different than saving. Investing is where you’re now going to choose, do I buy a stock, do I buy a mutual fund, do I buy an ETF, and what’s the difference between those? And by the way, we did some great podcasts on mutual funds versus ETFs.

I’ll give you the actual episodes of those here in just a minute so you can go back and listen to those. But the question becomes, where do I go when I start investing and how do I allocate the money inside of my 401(k)? How do people make those decisions, Jason? And what do you suggest? Because there again, we’re talking about a whole another area where there’s a big lack of education. And by the way, the episodes are number 12 and 13 where you go back and listen to mutual funds versus ETFs. Jason?

[00:32:59] Jason Newcomer: Yes. I’ll say maybe something that not everyone will agree with here. But when it comes to younger people starting out, building your investment portfolio, now you’ve got maybe a few hundred dollars or a few thousand dollars set aside, and these, whether it’s a 401(k) or an IRA, a Roth IRA, Roth IRA would be great, what do you do with that money?

How do you make it grow and how do you make it work for you? And everyone wants to talk about the things that are in the news today, whether it’s Amazon or Tesla or Bitcoin and those have their place. They have a role. Maybe 90% of your money that’s invested in these types of accounts should not have anything to do with those investments that I just mentioned. Keep it plain. Keep it boring. You shouldn’t be checking this investment account every single day. You shouldn’t be revolving around, “Well, it’s 3:00 Central Time, 4:00 Eastern Time. The markets are closed. Let me log on to my account and see how I did. How much money did I make or how much money did I lose?”.

Your retirement accounts, these are things that you’re not going to be touching for 30 or 40 years. So, don’t worry about what they do day-to-day. If you do want to participate in some discussions around the hot stocks or the things that are fun to talk about, limit that. Maybe a few percent of your portfolio overall, max 10% I’d say starting out.

[00:34:18] Dean Barber: So, you’re telling me that you didn’t take 100% of your money in January of 2020 and buy Tesla?

[00:34:27] Jason Newcomer: I took my savings for the month, was invested in the Vanguard total stock market fund, which doesn’t make me very fun when my friends, you know, they find out, “Oh, you’re a financial advisor. What do you think about Bitcoin? What do you think about Tesla?” It’s like, “You’re asking the wrong guy. I use index funds. And let me tell you about the things that get me excited about index funds,” and then their eyes kind of gloss over and they stop talking to me.

[00:34:53] Dean Barber: But you can build a predictable portfolio with what you’re talking about because you and I both know this. If you look at the total return over time, a little over 90% of the determinant of your total return is going to be proper asset allocation. And there’s a small percentage of that total portfolio return that is attributable to picking the best stocks. Now, I’m not saying that some people aren’t going to get lucky. I’m not saying go back to the current crisis of 2020, stocks dipped and maybe you bought oil really cheap because it was low.

Maybe you bought some casino stocks because they were cheap. Maybe you found some things out there that, okay, here’s a specific industry that got beat up for no apparent reason and we know it’s going to come back. Okay, now, maybe we have an opportunity if we’ve got some extra cash laying around that we can add to those positions and maybe overweight in those areas a little bit but you’re saying stay away from trying to be the stock jockey, you know, the guy that’s going to be out there saying, “Oh, look what I did.”.

Because you know what? You and I have seen it. We’ve witnessed it. I’ve witnessed it for my 34 years in this industry and the people that do that, they’re going to tell you all about their winners, but they’ll never tell you about their losers.

[00:36:13] Jason Newcomer: Right. Yeah. You get those questions all the time about, “Hey, I’ve got some extra money. What should I do with this? What sort of stocks should I be looking at?” Go back to, again, back to the basics. Do you have the emergency fund created? Is it somewhere between six months, twelve months? How about your 401(k)? Are you participating in that? Getting the full match? Maxing out your Roth IRA every year? Have you done those things? Those are the conversations that should be being had but instead, people are focused on the smaller items that in the grand scheme of things really aren’t going to make much of a difference.

[00:36:54] Dean Barber: So, Jason, here’s kind of what I think about this. I think about building a foundation of the financial plan like you would build a house, or in this example, I’ll use a pyramid. And so, the foundation of that pyramid is the risk management that we talked about earlier. Then you build on top of that risk management by having the right amount of money in cash reserves. And you build on top of that with a layer of your shorter intermediate-term needs being met, your 5, 10, 15-year goals. On top of that, you start funding all your retirement goals.

And once you’ve got all of that done and you know that all that’s in place, then the very top of that pyramid is your speculation part, right? So, there’s going to be then. Everybody’s going to reach a point or most people should reach a point, especially if they’re following our instructions here on what to do with at a young age. Eventually, you’ll reach a point where you will have a portion of your portfolio that you can afford to speculate with.

And when you start going out and buying individual stocks or looking at Bitcoin and those types of things, that is pure speculation because you’re counting on a single stock or a single company or single industry to do something magical that nobody really thought was going to happen and it’s going to make a whole bunch of money. Most of the time it doesn’t work. Sometimes it does.

I’ve seen it happen, but I’ve seen it also go the other way. So, that’s your speculation money and it should be after all the other things that you and I have been discussing today have been completed, yet it’s not sexy and it’s not what people want to talk about. And they want that quick and easy. I want to make a buck. I want to do the Hillary Clinton cattle futures trading strategy so that I can turn my 10,000 into $1 million in a matter of three or four months. Can’t we do that, Jason?

[00:38:37] Jason Newcomer: Right. Yeah. Again, it’s not the conversation that everyone wants to have when it comes to budgeting or making sure that you’ve got the basics covered before you kind of jump in and you start talking about which stocks should I be trading? Trading is probably the very last thing that should be discussed in your financial plan. That’s maybe the itch that you want to scratch if you want to think of it as a hobby. There are certainly less expensive hobbies out there than trying to pick stocks. Again, if you absolutely need to feel like you’ve got to participate in picking individual stocks or crypto currencies or any speculative investment, again, limit that exposure. Initially, don’t even have it as part of your framework but once you get to that point, 5%, 10% share, that’s probably not going to hurt anything.

[00:39:26] Dean Barber: Jason, we’re going to wrap this up here pretty quick, but I got one other area that bothers me right now and I want to get your take on this. It is super easy today with some of the apps that are on your telephone that you can set up online trading and do different things that you can actually buy on margin, which means you’re actually borrowing money in order to invest that money. And people are doing this. They’re trading in individual stocks when they haven’t done any of the foundational things that you and I have talked about, and they’re trading with somebody else’s money. They’re borrowing the money to actually invest in those stocks, and betting on the company. What are your thought process on that and what advice would you give our listeners to that?

[00:40:10] Jason Newcomer: I think it’s dangerous. I believe there was actually a young man who took his own life when he experienced losses and that, I mean, they were just compounded by the fact that he had done this on margin and it’s tragic that that happened. Again, I think it happens because people aren’t properly educated on what they’re doing. There’s a lot of dangerous things that can happen, again, a wrong mistake made early on in financial planning. Maybe when the stakes are small, when there’s not that much money at risk, maybe it’s not going to manifest itself in any serious manner but down the road, yeah, when you’ve started talking about some of these more speculative trading on margin things, those are absolutely things that can hurt.

[00:40:56] Dean Barber: Yeah. And now I’ll just give a quick word on the margin here and I think the margin has a space, it has a purpose, and I use it in a conservative purpose. So, for an example, someone is holding a highly appreciated stock and they need some liquidity to buy something and yet they know if they sell that stock that they’re going to experience massive taxes due to capital gains.

Well, is a better option to margin a portion of that stock, borrow the money, pay it back over time. And so, in essence, what’s happening is the brokerage company is going to hold the stock as collateral. It doesn’t get sold. You get the money, you can pay the money back over time, and you still get to hold on to the stock. In my opinion, when you start talking about margins, that’s one of the few areas where I think the margins make any sense.

[00:41:54] Jason Newcomer: Yeah. I mean, it’s debt. You know, credit cards, those are debts. Mortgage, that’s a debt. There are certainly some points where debt, when used properly, is a very powerful tool, although those same tools can really hurt you if you’re not aware of how they work or really what you’re getting yourself into.

[00:42:16] Dean Barber: Jason, this has been enlightening. We’re going to continue to do more programs so that we can continue to educate the younger investor out there, people that are getting ready to start. In our show notes, you’re going to find links to the books that Jason talked about. You’re going to find links to our website, to areas where we can start helping you as the younger investor gets started, how to set up those portfolios, how to get them funded. All that’s available in the show notes, links that are down there.

So, Jason Newcomer, CERTIFIED FINANCIAL PLANNER™, and I got to mention, Jason, I’ll toot your horn here just a little bit just because I know you don’t like to do it, the fact that you have gone so far in diving deep into the education, you’ve got your EA, which is an enrolled agent, you’re really paying attention to the craft of financial planning. And the broadness of the education that you have is something that anybody that takes the time to sit down and visit with you and just listens to the basic fundamental things that you tell them to do, I believe will be far better off for it.

And it may not be the sexy flashy, “Oh, we’re going to do this with Bitcoin or we’re going to trade these options or we’re going to do…” No. Let’s build a foundation that’s so solid that you get to a point where now you can maybe do some of those things with some of your risk capital.

[00:43:41] Jason Newcomer: That’s right. Those conversations come later, but they’re absolutely part of the big picture.

[00:43:46] Dean Barber: Yep. Jason, thanks for being here.

[00:43:48] Jason Newcomer: Thanks, Dean.


[00:43:49] Dean Barber: We appreciate you joining us here on The Guided Retirement Show. As always, make sure and hit the subscribe button on your favorite podcast app. If you’re on YouTube, give us a thumbs up, give us a like, give us a share, do all the fun things that you do on social media. Let all your friends and relatives and coworkers know about The Guided Retirement Show. We do want to thank you for the thousands of downloads that we’ve had in our very short time in existence here on The Guided Retirement Show. Make sure and check out the show notes for more important information on how to get in touch with us, how to schedule a complimentary consultation, and all the important information that was listed in today’s program.


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The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.