Updated: Jun 21
Creating Wealth is an in-depth conversation between Bill Taber, an experienced financial advisor, and his millennial daughter about personal finance, investing, and financial planning.
Episode 4: How do you begin the practice of investing if you're new to it? Bill and Anastasia discuss the basics: How to get started with investments, when to hire an investment advisor (the three Ts), and why younger generations especially need to contribute to a 401(k) or other retirement savings account.
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Anastasia: Welcome to Creating Wealth, I’m Anastasia.
Bill: Hi, I’m Bill.
Disclaimer: The views expressed today are our own, solely for informational purposes, and it is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular investment strategy. The views are subject to change and are not intended as a forecast or guarantee of future results.
Anastasia: This is our next podcast which is about investing. For someone who’s never invested before, which is what we’re imagining our podcast listener is right now, what benefit is there for them to put their money into investments?
Bill: Well, it takes a lot of effort to save money. I mean you work hard for it, you get paid, you pay taxes, and then you have what’s left. Investing is important because the return from savings generally doesn’t keep up with the cost of inflation. You want your money to be able to maintain its purchasing power over its lifetime, and so investing is important to be able to do that. That’s the key to creating wealth.
Anastasia: So you’re saying, don’t just put your money away in a savings account.
Bill: Savings is important for things like emergency expenses.
Bill: Things that come up that you need to cover so that you don’t have to borrow money to cover those expenses. It’s also important for things like saving for a down payment on a house, so that you have that money there when you need to make the down payment. Beyond those things, it’s a matter of saving so that you can get a return that increases your purchasing power.
Anastasia: Yeah, so you don’t, if you’re saving for a house you don’t want to put all of your money into investing because it’s not like you can just get it out tomorrow.
Bill: Yeah it’s not like you can get it out tomorrow but also you may or may not have the same value there, because many investments have the opportunity to beat inflation, but some of them can depreciate or fall in value.
Bill: And you don’t want to put money aside for a down payment into something that can be variable and perhaps be down in value when you need to write the check for the down payment.
Anastasia: Right. In your career, you focused mainly on long-term investing.
Bill: Long-term investing is all about creating wealth and something called the “Eighth Wonder of the World” where money makes money. You can make money through your--
Anastasia: --Wait, who calls that the eighth wonder of the world?
Bill: I’m not sure, it’s been around for quite a while.
Anastasia: That’s kind of cool.
Bill: You can put in physical effort to work and create money and get paid for doing a job. But if you’re able to take some of that money and save it, and then put it in investments, and that money starts to grow so that money makes money, then that’s the beginning of the process of creating wealth or becoming wealthy.
Anastasia: Well, that all sounds very, very attractive. (Laughs.) That sounds very nice. I would like to grow my money.
Bill: (Laughs.) Well, it offers, it offers you the flexibility of doing less work in the future if you want to do less work, or perhaps not working at all. It just depends on what your goals are.
Anastasia: True. Okay, so I guess we’ve discussed why we should invest. How should we start investing? How do we get started with that, speaking as someone who’s never done that before?
Bill: Well, how to invest is kind of thrust upon the millennial generation in today’s world because of changes in attitudes on the part of employers relative to providing pensions for their employees. I’m talking about post WWII, it was very common for workers to be offered a pension plan by your employer which at your retirement gave you a certain amount of money per month for the rest of your life. And you didn’t have to do any thinking at all about that. Basically if you worked for them for a period of time and then you retired, they were obligated to pay you a fixed amount for as long as you lived. Today, that type of pension plan is becoming increasingly extinct and employers are offering their employees participation in things like company 401(k) plans or if you work for the government, a 457 plan. Or if you work for the school district, a 403(b) plan. And all of those have several things in common. First, they’re intended to be a major part of your retirement well-being. Second, they offer current tax advantages or tax breaks. But third, they force you to become an investor and the returns that you get are up to you and your knowledge and how well you can make the money grow. So, whether you like it or not, you’re an investor (laughs) if you’re in today’s economy and if you’re employed by a company, and it’s important to learn the ins and outs of that.
Anastasia: Yeah that makes a lot of sense. Millennials have a very keen understanding that in many ways we’ve been handed a short stick (laughs). We have student loans. We have a housing market which is just insane, at least in the big cities and, you know, I’m speaking as someone who’s currently looking for housing and it’s horrible.
Anastasia: You know, we also don’t have social security or won’t have as much of it by the time we retire. And we’re also living longer, so we’re going to need it, more retirement savings than previous generations. So it’s just like a lot of things.
Bill: Yeah, that’s a lot. And one of the major keys is that the generation post-WWII didn’t have to really consider retirement that much. Social Security was in place and was working well and then their company had a pension plan for them, and they got that check just by being alive.
Anastasia: So nice.
Bill: Today, Social Security, it’s going to be around, but at this point in time, the best estimate is that they’re going to have to adjust the payments downward here in about ten to twelve years by roughly 25% of what the current benefits are. And so you’re paying into a system that will not pay back as much as the current generation is getting, which basically means it’s important for you to increase personal savings through employer plans, 401(k), and also personal savings. So it forces more planning and more self-discipline on your generation, which I think your generation is entirely capable of doing. But it starts with a certain awareness that it needs to be done and thought needs to be put into developing a plan ahead of time.
Anastasia: Yeah. Okay, so I think we haven’t talked yet about specifically if someone wants to start investing today, what should they do? Let’s assume that they have their retirement savings through their company, like a 401(k), if they’re interested in at some point investing in, like, the stock market, what should they do to get started with that, or where should they be when they do start with that?
Bill: A good way to get started is by looking at the company plan, the 401(k), and what they call the match. That’s the amount of money that the employer is willing to put in for you based on what you’re willing to put in of your own salary. So, many companies have different percentages, 15% would be the high side, so you might not be able to do all of your 15% of your savings just with a 401(k), but you can certainly do a lot of it. And you will want to ask the HR department, “If I put away x% of my paycheck, how much will you match?” And let’s just say it’s 6%. That’s 6% that the employer kicks in for your 6% that you want to do as a bare minimum. Beyond that, you can put an additional amount in, say up to 8, 10, 12% depending on what the company allows. If it doesn’t get you to the 15%, then you can start a Roth IRA or you know, personal savings investments, which basically would be a number of different things. You could, it doesn’t have to be common stock or mutual funds or ETFs. You could invest in real estate if you’d like to. I know some people are doing rental properties, and receiving rent from others. But some type of investment where the money can actually grow and beat inflation.
Anastasia: So, I have a friend who has asked if we wanted to buy a property in North Carolina and then rent it out to people who are on vacation. That’s a whole separate podcast because (laughs) I don’t know how great it is to go into business with your friends. Um, that’s an example of something that someone could do on their own. If they had the savings, they could purchase another property, and that’s a great way to earn passive income, right? Is to have people pay you rent. But, if you’re more interested in getting involved with the stock market, I’ve heard you mention that you can choose your own investments or you can hire someone to do it for you and it’s based on what you say is time, talent, and temperament.
Bill: Yeah, the key to successful investing in the long term is having the three Ts, and as you indicate, the first one is Time. There’s a certain amount of self-education that is involved in simply reading, and there are numerous articles in the media about this constantly, just educating yourself about it. Talent is a matter of over time figuring out if you have the ability to look at an investment and figure out what it’s worth, what it’s value is, and then also have the right temperament to decide to buy that when it’s selling for less than what it’s worth or being undervalued, which means buying low, so to speak. And then if necessary selling it at some point in the future for when the price is high, or being overvalued. Not everybody has that ability. And I think Warren Buffet talked about the proper emotional attitude is that you have to be greedy when other people are fearful about an opportunity, and you have to be fearful about an opportunity when other people are greedy. And so it’s counterintuitive. Successful investing is a matter of not following the crowd, not following what everybody’s doing.
Anastasia: Not jumping on the hype train.
Bill: Yeah, which is typically what young people will do is someone else is doing it. If somebody that I respect who is a friend of mine is doing it, then it must be good..., therefore I’m going to do it.
Anastasia: Are you calling us sheep, Dad? (Laughs.)
Bill: No, and I’m not singling out the millennials (laughs). It’s basic human behavior. And it requires an understanding that you have to go against the flow, you have to be something of a contrarian to be able to buy low and sell high.
Bill: That temperament, that’s a key. And the talent over time is simply being able to recognize something that you think is going to be worth more in the future. And there’s all sorts of opportunities to do that in today’s economy because of all of the changes that are occurring at a technological level.
Anastasia: So, I know that there are some people who have apps where they can go and choose investments. I do know some friends who really enjoy making those decisions themselves, but as someone who has so many other things that they want to do, I think in that case it’s wise to have an investment advisor, or someone who can, whose whole job is to pick investments and really vet them. And that itself is a whole different podcast.
Bill: It is. The decision on that is a personal one. You know, whether you have the desire and the self discipline to do your own investing, or whether you would trust someone else to help you. TABER Asset Management is a fiduciary. It’s a fancy term, but basically it means an entity that has the legal responsibility to put their clients interests first, and ahead of their own. And so if someone is looking for assistance in helping them to build wealth, I think that’s a good first place to look is for someone that is a fiduciary.
Anastasia: Yeah, I think John Olivier had a very good segment about that.
Bill: And he said it in a very entertaining way. (Laughs)
Anastasia: Yeah, I mean he’s just entertaining. (Laughs) Great, so I think that’s all of the questions, but was there anything else that you wanted to mention?
Bill: Just some key takeaways from this. First, the key to creating wealth: Saving money, spending less than what you earn and then putting the difference into investments; putting your money into investments that exceed the rate of inflation so that your money doesn’t lose purchasing power; participating in your employer retirement plan, that’s a key. And then, I forgot the last one. (Laughs)
Anastasia: (Laughs) Must not have been important.
Bill: (Laughs) Oh, and the last one is to get started now.
Anastasia: Oh, that is important. (Laughs)
Bill: --Because time works against you before you invest, but time works for you, after you invest.
Anastasia: Hmm, I like that. That’s nice.
Bill: Takes advantage of the compounding effect of money, that money makes money.
Anastasia: Yeah, so get started with that now. But don’t feel pressure, don’t feel like you’re behind already, because everyone probably feels that way.
Bill: Mhm, yes. But remember that sooner is better later.
Anastasia: Right, exactly. Sooner is better than never. (Laughs)
Anastasia: Okay, so I think that’s it. Do you have anything else?
Bill: Not today.
Anastasia: Perfect. Thanks again Dad for all of your lovely advice.
Bill: Yup, thank you!
Anastasia: If you liked our podcast, please recommend it to your friends, leave us a review, or drop us a note. Thank you very much for listening and joining us on the path to financial abundance.