Family and Finances: Episode 8, Part 3

I think that there are other opportunities that come along that God may put in your lap that you need to pay attention to. There are organizations that you just know are going to be dominant in their space. One of the Warren Buffet philosophies is always buy the number one brand in a sector. Don't buy number two or number three because they're probably going to get bought out by number one at some point. That's a very simple guideline that he follows. He studies how much debt does the corporation have, what kind of management. Warren Buffet says that he can meet the CEO of a company and determine if it's going to be successful or not based upon their enthusiasm and passion for the business. If he believes that's one of the best things to do before deciding, then I need to read about the CEO. I need to read about whether they're a good steward or not. Warren Buffet is not a man that shares our faith. It's interesting. He does share a lot of our values. One of the values he shares is living frugally and being very faithful with whatever he's been given. He took a small amount of money and multiplied it over and over and over successfully. He's had a lot of failures. I was listening to him share about his journey in life because he's getting older. He said three different times in his life his investments have lost 50% of their value in the public stock market. He said he has never sold any of them during the downturns. He's always ridden it out. And so Templeton, another great investor, said the easiest way to learn to buy stocks is to purchase them at the point of maximum pessimism. Do you know how hard that is to do? That means when everybody is getting out, you say, I want to go in. Everybody's running from the building and you say, I'll go in.

That's the point of maximum pessimism. It means stocks go on sale and you've got to say, I'll buy them when they're on sale. And the best time to sell them is a point of maximum optimism when they're rising and you want to keep hanging on. You can't want a little bit more, a little bit more. And a lot of times you hang on way too long. And so that's an emotional decision and you have to be able to control your emotions to be a good investor. Yeah. Well, that's, again, that's super helpful, Chuck, just to get some ideas of, you know, for some folks that maybe aren't comfortable single stock investing yet or wondering what index funds are. It's helpful just to understand someone like Warren Buffett would recommend that his heirs and children would do something along those lines. And we didn't talk about diversification, which is a biblical principle, and that's where I differed than Warren Buffett. He calls it de-worsification. He doesn't believe in it. He claims he doesn't believe in it, although he practices it. And diversification means that, you know, I think it was Benjamin Franklin said, don't put all your eggs in one basket. It means, you know, don't make yourself more vulnerable because one sector may go down and one sector goes up. And look, the idea of hedging is that you've made investments sort of on both sides of the equation, where if this sector might go down, let's say energy prices go down, but online transactions might go up. And so you buy both so that you're diversified. And God said to diversify, what Solomon said, it's a great principle. And he said it based on this, that no man knows the future or what disaster may befall us.

And so diversification is helping to prevent a disaster. And so those people who have the gambling mentality, who are telling you and elbowing you, hey, hey, hey, I'm making big over here. They're usually the ones who put all the eggs in the basket and they want to moonshot. You know, they want, they want to buy the next big unicorn is the term. Yeah, they want 10 eggs, 100 eggs. Yeah. Yeah. And they're going to tell everybody about it. What they don't tell you is how much they've lost in many times trying that. Those stories don't get, don't get told because a lot of times they're just trying to bail out some of their previous losses. That's, that's great, Chuck. Switching gears just a little bit, thinking about, you know, young families with children as they're starting to look towards the future, they're saying, man, my, my kid, when they turn 18, they might consider college, you know, further in their education. Where does saving or investing for your children's education or expenses, where does that come into play here? I have a good friend that is big into real estate, and he basically has said, you know, for every one of my children, I'm going to buy a house, a rental property, and then when they turn 18, I'll sell it and use that towards their education or a car or things like that. You know, so as young families are thinking about their children's future and wanting the best for them, what would you recommend in regards to investing or savings for that? I'm not real big on the tax advantage savings plans for education. Number one, a lot of families, that's not their greatest need is to have the tax benefit of that. It's a good thing, but there's some restrictions to it. By the way, just before I get to the total answer there, you know, a traditional IRA gives you the immediate benefit of a tax reduction, a tax credit in the year that you start that IRA.

A Roth IRA does not give you the present benefit of that tax deduction. It's the future benefit when you withdraw the money. And so most people who think their income and their tax burden is going to increase over time, if they're on a high, fast trajectory of income growth, they prefer Roth. And so that's sort of how I sort that out, Roth versus traditional IRA. But when it comes to our children, I like your friend's idea. Start early. The biggest regret most people have with investing is they didn't start early enough. And look, if you can start early, it is a great thing to do. We were on our walk the other day and one of our neighbors stopped me and said, you're the money guy. I get asked questions about this. They want to know what stock to buy for their grandchild. And they had made a decision to never give them Legos and plastic and disposable toys for their birthday again. They'd just done all that. And they said, every year our children are getting a share of stock for their birthday, our grandchildren. And the light bulb went off to me, why aren't we thinking that way? You know, the toys get thrown away. But as a grandparent, we can start making an investment in their name and their account and laying aside for their future. And that's such a blessing to be able to do. We've done that in terms of saving accounts for some of our children, but not investment accounts. So I like that idea a lot, Calvin. That's very helpful. You know, talking about different forms of investment, you know, thinking about real estate, other things like that. I know gold tends to get brought up a lot in conversations when thinking about investing.

So where does gold fit into the mix in regards to people investing their money? Is it a worthy investment? Is it something that, you know, you should diversify into? Where does it fit? Well, it's obviously a very, very broad topic when you think about investing. We're trying to help families to be wise with what God's entrusted to them and to guide them in some of the basics today. I get asked about gold all the time. And I like to say you have to divide that topic into at least this simple category. There's gold bullion, and then there's gold-related stocks. And so much of what we've been talking about is the public markets, the stock markets, index funds, or publicly traded instruments that are tied specifically to the markets and or sectors. So most people, when they ask about gold, think about physical gold. Like coins? Yeah, gold bullion. And so I think that our currency is being devalued. And gold is a stored value, and it's going to hold its value as our dollars get devalued. And I think that devaluation is at a very significant place right now. So I think it's good to have gold. And there's a debate. Warren Buffett would say that it is an insurance policy against devaluation. But it's not a great investment because it doesn't have the 10x, 100x kind of upside that a publicly traded stock might have. So if you look at it as an insurance policy, it's good to have it. It's a little late to be thinking about converting to gold. I had a pastor call me yesterday, just yesterday, frantic that our economy is going over the cliff and he wanted to take all of his retirement savings because somebody in church told him to do this and put it into gold. And I said, well, you're going to violate about four biblical principles.

You can do it if you want. I'm just not going to do it. I don't think that's a good idea. Diversification stands under any circumstance. It's important. And gold is one area to diversify into. If you want to buy some. Buy some that's transferable. You know, a gold watch isn't what we're talking about. We're talking about coins. We're talking about bars or bullion. And if you buy some, you have a nice insurance policy against devaluation. I have other friends who say they would much rather buy stocks tied to gold. They're more liquid, they're easier to sell and trade, and they actually fluctuate even higher than just the base price of gold. So don't get gold fever. That's the bottom line of that. Yeah, I feel like I've seen a lot of Facebook ads or Instagram ads of, oh, buy gold now, sell all your stock. Everybody's chasing it right now. Warren Buffett said you buy gold when you're long on fear. But other people have to get more afraid than you to buy your gold, and so how afraid are you? So you don't really wanna invest in fear. You wanna invest in, and so it's a protection, it's a hedge, it's an insurance policy. Yeah, so I know a lot of folks,

probably listening to this podcast, have worked with a financial advisor before, and sometimes that can be a very helpful instrument for keeping you away from fear because someone else is kind of managing your investments for you. I'm curious, Chuck, because I've heard some questions about fees and different things like that. What can you expect in regards to fees with financial advisors or other funds? And what kind of expenses would you be considering with those? Well, there's a do-it-yourself route, and that's what a lot of young people choose to do. They download an app, or there's even now artificial intelligence advisors that tell you what to do. You just plug in your answers, and supposedly those are really trendy right now. And there's low-cost trading houses like Ameritrade or Fidelity or a whole lot of them. We happen to trade through Fidelity. We just have been there a long time, and we like it, and there's not a lot of, there's very, very low transaction costs on things we want to do. But all the studies show that if you have a financial advisor, you do better long-term than the do-it-yourself model. And the reason that that has proven to be true

is a financial advisor has an interest in keeping you invested, of keeping you in the market. They talk you off the ledge when you want to get out when everybody else is low. When you want to get out at the worst time, they go, why do that? You're gonna lose money. And so they talk you into keeping your tree planted for the long haul. And it's shown that they're worth their fees because of that. That one differentiator is they help you through the emotional highs and lows. And long-term, they outperform the do-it-yourselfer. Now, there are people that are unscrupulous, and their fees are too high. So when you choose an advisor, choose one that shares your values, choose one that has a proven track record of integrity, and one that you have studied how they're charging you compared to other people in their space. You know, Calvin, I just did some research on a question about refinancing a mortgage. And the disparity between the cost of a mortgage, which you would think would be so standardized, it's all over the board. And to make a decision on a refinance or purchasing a house right now as an investment in real estate,

the costs are vastly different, depending on how much research you do to get the better rate. So always, always, always do your homework when choosing a financial advisor. Well, that's great, Chuck. I think we're probably out of time. We're coming close to the end of our time today. But I'd love, maybe in a future episode, to discuss real estate investment as well. I know that's something that's really hot right now. I have a lot of friends, kind of in my age demographic, that are talking about buying rental properties and investing in the real estate market. So I'd love to dig into that in the future as well. Well, Calvin, I've enjoyed having you. I missed Ann today. I bet, I bet. But she thought that you'd do a much better job at this than she would, and quite frankly, you've been great. Thank you for helping me through this. Let me just say this about real estate, and then we'll move to the next podcast next week. Real estate is the biggest investment you make as a couple, the biggest decision you make. And we need to talk about that in depth, some of the principles and how to do that well. That's sort of my background. And so, not only as an investor, but as your primary house choice.

I want to talk about that, and then how to get into real estate, and even some other forms of investing that have nothing to do with stock market. But thanks for helping me out today, Calvin. Yeah, Chuck, this has been great. Thank you. Appreciate you much.