Hard to Save

SPEAKER_00 0:05

You're gonna do a really great financial future.

SPEAKER_02 0:08

Tom and Don are talking real money.

SPEAKER_00 0:11

Talking real money is your source for financial information. That's right. Five days a week. We're here to uh help you make better decisions about your money, answer your questions, and give you that long-term advice that really makes sense, common sense. Nothing crazy here. So doing it every day, and every once in a while we're lucky because one of our advisors, Roxy Butner, will drop by and be on the program. And uh thank you for doing that today because we know you're very busy in your little office there, especially with your treadmill going. Yeah. She answers your call sometimes on the treadmill. I try to recommend against that, but uh, all kidding aside, thank you for joining us.

SPEAKER_01 0:50

Absolutely very excited to be back.

Saving for the Future

SPEAKER_00 0:52

Yeah, it's great. And so here's the thing Roxy gets invited to speak to other groups of people, and recently she did so talking to a group that included some entrepreneurs. Now, I've been an entrepreneur my entire life, going back to selling Holly at age 10. So um I know how this all works. Sometimes you're flush, most of the time it's kind of close, and sometimes you're just downright broke. And entrepreneurs oftentimes have a hard time saving for the future because they're reinvesting in their business rather than uh saving for the future. But let's just, before we even get into that, and so you did a great presentation on that, which I I got to see the slideshow, which I loved. But let's just go back to the beginning about how people save, because we know it's still less than half of us save anything. Um many people are sort of like, well, where do I start? How do I do anything? And if you have any income, there's a couple of ways to kind of get started. One would be these are for if you do not have a plan at work, right? I'm talking about doing it on your own, right? You got to get started. So one would be just an individual retirement account, correct? Where money just goes from you right into that IRA. That's your retirement and that's your future. There's not the tax benefit there is you can get a deduction for it and it grows tax deferred, correct?

SPEAKER_01 2:11

Yes, exactly.

SPEAKER_00 2:12

Okay, and that's one. Then you could do the Roth IRA, where again, money goes in after tax and grows tax-free. So there's a lot of advantages to this. I talked about at retirement, the fact that my now 18-year-old daughter's already got a significant amount in her Roth, and if things work out the way I think they will, she's already a millionaire because basically she will have saved enough at 25, and if she did nothing else after that, uh the Roth has that huge advantage of growing tax-free, which is which is outrageous. Um and so that is advantageous in many ways for people too, correct? And even more advantageous.

SPEAKER_01 2:46

Yeah. So you just have to be very careful about the IRS rules. One thing you would definitely want to look into, which is a quick Google search or now chat AI search, whatever will tell you exactly how much you can put in. Maximum for 2026 is 7,500 if you're under 50, and then 8,600 if you're over 50. Um, and there are certain income requirements for the Roth IRAs. So if you make more than a certain amount, you cannot contribute to those, but you'd still be able to contribute to the traditional IRAs if you're not already sponsored by an employer plan.

Retirement Savings Options

SPEAKER_00 3:16

Hey, wait, you're uh there's people under age of 50? That's crazy. I didn't know that. I gotta pay better attention. Uh, all kidding aside. So, okay, so those are the real basics. You can, of course, have a brokerage account and put money in there, but that's not I I I like the other ones because people have less tendency to go raid those when they need them to keep their business going. Yeah, right? That's harder. Yep. But there's some other things you can do if you're, as I would say, self-employed, um, you're an entrepreneur, you got your own company. This is the kind of things you focused on in your presentation. Give us a couple of examples there.

SPEAKER_01 3:48

Okay. Yeah. So I would say exactly as Tom said, IRA, traditional, and the Roth IRA is a great starting point if you've only got a little bit of extra cash to kind of put aside for retirement. But if you have a little bit more and you want to sort of automate it, there's a few options specifically for small business owners. And so three that I'll talk about today. The first one is your solo 401k. So you might have heard about this. It's very similar to actually a regular 401k if you just worked a regular job and uh had an employer plan. But you can only contribute to a solo 401k if you're the business owner and the only employee outside of your spouse.

SPEAKER_00 4:27

Aaron Powell And do you want me to do the solo now? I could do Santana, I could do maybe the band Chicago, CV Wonder, which which solo are we looking for?

SPEAKER_01 4:35

I don't know what everyone would uh would appreciate.

SPEAKER_00 4:37

None of the above, I'm I'm fairly certain.

SPEAKER_01 4:40

But um the idea here is that you can contribute to the solo 401k for you and your spouse, and you can contribute as an employee. You can do up to that maximum last year was 23,500, I believe, if you were under 50. And um as the employer as well. So you can sort of take both hats, the employer, and you can get deductions on that end from the business side and the employee side as well, just on your personal taxes, that W-2 income you pay yourself can go straight into a tax-deferred vehicle. So that's a really good option, and a lot you can put a lot of money away with that. Then you've got for folks like maybe realtors, where your income can be very high, but it's very inconsistent, you can use a set by array. And this is a little bit easier because you don't have to do sort of regular contributions. You can determine at the end of the year with your CPA, here's how much I made selling XYZ properties, for example, this is how much you can put away for in a set by array. And the limits are going to be higher than a traditional.

SPEAKER_00 5:45

So you can put more in there. Yep. And the thing, by the way, for any of these, when you're working for yourself, or as you said, especially a realtor, because I happen to know one, uh I know several, but I got one in in the family. I've recommended that the minute she gets the check for the commission, the 20% of that just goes and get put away. You've got to have a discipline here because it's very hard, otherwise, excuse me, other things come up and people say, well, I got to spend money on XYZ. I recommend the minute that money comes in, the money goes out into that SEP IRA. And there's the maximums there are very high, right? In terms of how much you can put away.

SPEAKER_01 6:22

Trevor Burrus, Jr.: Yes, very high. So I mean, we were talking, you know, over I mean, we're talking over 60,000, 70,000 for a lot of these plans versus, again, with those traditional IRAs and the Roth IRAs, we said, you know, 7,500 is kind of the max. So you can put away a lot more. Um and this is the set by array is also great if you have some employees, but you need to make sure that you will have to contribute to that to their plans on their behalfs as well. So that's really important for folks to know and not to mess up.

SPEAKER_00 6:53

Aaron Powell So if you have actual not just 1099 and have to be W-2, or does is there a differentiation there?

SPEAKER_01 6:59

Aaron Ross Powell Either one, actually, I believe with a set by array. Um but if you have and it there is actually you can set it in your plan agreement what those requirements are. There's a little bit of flexibility, you know, like they if they're under 21, then you don't have to, or if they haven't been working there for two years, then you don't have to, that sort of thing.

SPEAKER_00 7:18

Okay. So some pretty good options to set money aside for people who are working. Trevor Burrus, Jr.

The Importance of Time and Compounding

SPEAKER_01 7:22

The last one is for maybe larger companies, so you're a small business but you have under maybe a hundred employees. It's a simple IRA and it's exactly as it sounds, it's very simple. You have lower contribution limits, but if you have multiple employees and you want to give them an option to do employee deferrals, meaning from their income, put some money away for retirement. The simple IRA is a great plan that allows you to do that.

SPEAKER_00 7:48

So there there are ways to save as an entrepreneur. I would do it the same as Roxy and I do every two weeks. That money comes out of the account, it goes into the aforementioned retirement plan, it's gone, it's invested, and hopefully it's forgotten because most people it's hard, again, when you're in trouble in business, not to look at all of your options to save it. So though that your part of the presentation was on that. But the part that I was fascinated by was uh something that I think every young person should be taught. The power of time, the power of compounding. It's astounding what that means. Um give us a couple of examples about how significant time, when you start young, it's just absolutely incredible how much money could be saved for a l uh over that long period.

SPEAKER_01 8:33

Yeah, I have a great chart. I wish I could show it on the podcast.

SPEAKER_00 8:36

I'm holding it up right here. Yeah. There we go.

SPEAKER_01 8:40

So I'll ask you the question actually.

SPEAKER_00 8:42

Oh, I'm gonna I'm gonna be wrong here again.

SPEAKER_01 8:44

Who do you think will have more money? Oh, okay. We're gonna do one of those. At age 65. Okay. The person who invested$200 a month from age 25 to 35 and then stopped. Or the person who hundred a month.

SPEAKER_00 9:00

So 2,400 times 10 years, so$24,000.

SPEAKER_01 9:03

Yep.

SPEAKER_00 9:04

Okay.

SPEAKER_01 9:05

Versus the person who started at$35 and invested$200 a month until age 65.

SPEAKER_00 9:12

Wow, I'll go with the early just because I know it's a setup and you're trying to show me how important it is to get going early. So I'm just gonna I was gonna say that whether I ran the number or not.

SPEAKER_01 9:21

They're pretty close, but the person who started early and only invested for 10 years from 25 to 35 ended up with more money than the person who started at 35 and stopped at 65.

SPEAKER_00 9:32

It shows you how significant that early start really is.

SPEAKER_01 9:35

It really is. And I think the the biggest issue that we have with um business owners is that they, as you mentioned, don't pay themselves first. They put everything back into the market. And they think, you know, 20 years from now I'll have an exit plan or the business will be succeeding, and then that'll be my retirement plan. But it's better to start a you know, even if you start small, just automate a little bit, paying yourself first.

Common Mistakes in Financial Planning

SPEAKER_00 9:56

Aaron Ross Powell I love it. And and again, the time aspect that again people have a tendency to overlook. Uh uh compounding interest, uh didn't Einstein call it the eighth wonder of the world or something. I mean, something like that. It's it's it's just absolutely amazing how important that that is. So, okay, so as a practitioner, and for those of you who don't know, Roxy doesn't just hang around here wait to be on the next podcast, uh unlike me. So she actually has a job as an advisor uh here at Appello Wealth, been doing this for a long time now. Well, kind of a long time. Uh and and so you get the chance to work with people every day. One of the things that I like to know about, because I I mentioned this at retirement as well, and I think the video will be available soon, is biggest mistakes that you see by people, things that people uh overlook, errors they make. What are some of the ones that you see on a regular basis?

SPEAKER_01 10:47

Yeah. I mean, I think one is especially as we just talked about, business owners not setting themselves themselves up for success. Yeah. And in general, folks not starting to think about retirement early enough. I get really excited when my clients bring in their like 29-year-old niece and help them set up a Roth. Like that gets me really excited because it's setting them up for success. So that's one big thing. The other thing we just met with Kanoa's team, actually, he's the Kanoa Ostrom. Yep. The state attorney who was at retirement. And the thing that in Washington State, not enough people are thinking about Washington State estate taxes.

SPEAKER_00 11:26

Aaron Ross Powell, which are pretty high, right? I mean it's the 35 percent after two million or something like that. I always forget the numbers, but yeah.

SPEAKER_01 11:32

Now it's up to three million, I think. Okay.

SPEAKER_00 11:34

So they raise the they raise the capital. It's easy to get to.

SPEAKER_01 11:39

You have a house and some retirement savings and you're basically there. So that's one thing that people are not thinking about.

SPEAKER_00 11:46

Estate planning, if you would.

SPEAKER_01 11:48

Trevor Burrus, Jr.: And I understand folks are like, well, you know, my beneficiaries will deal with it when I'm gone, but would wouldn't you rather that money go to them versus the IRS? So you should be thinking about that.

SPEAKER_00 11:57

Or the state of Washington.

SPEAKER_01 11:59

Yeah, exactly. So those are two of the ones that you see on a regular basis.

SPEAKER_00 12:04

Aaron Powell Yep.

SPEAKER_01 12:05

Right now we're dealing with a lot of last minute sort of contributions because the tax filing deadline is coming up.

SPEAKER_00 12:11

Yep.

SPEAKER_01 12:11

So last minute set by contributions, for example, people are waiting to file, you know, process their 2025 taxes to find out where their income stands. That helps them determine how much they can put away in SEPIRAs, even if you are, you know, can contribute to a Roth IRA depending on your limit. So lots of tax-related questions going on.

Questions from Listeners

SPEAKER_00 12:30

Makes sense. Because you know just around the corner from filing. And we're going to ask you in a couple of minutes what people are asking you about today topically and what people can get by just asking for your help. But let's go to a couple of the questions. Uh because they come in all the time at talkingrealmoney.com. You just go there and ask a question. That's what you click on now. Pretty easy to do. Pamela writes us from Durham, North Carolina. Hi, Don and Tom. Who is Don? They refer to. I don't know. I'll have to look that up. Uh I enjoy your podcast. Thanks for all you do. I have a question about asset allocation for my HSA Health Savings Account of 57, still working. I have an HSA at work, which I max every year. I don't like the options or fees, so I opened a Fidelity HSA and transfer my money from my work one a few times a year. I don't have I didn't have access to an HSA until three years ago, so I'm working on building it up. I do not use the HSA for expenses, but save my receipts for the future. Very good. This is one where you can save and you get the tax deduction and then it grows, and then when you need the money, you can take it out tax-free. My question is about the allocation. For the HSA, I'm 100% equity, 60% AVUS, and then 40% AVNM to capture both U.S. and international markets. My use, my plan is to use the HSA for medical expenses after 65, so eight years from now. High risk tolerance, she says. Thinking of being more aggressive in the HSA due to tax-free growth, I'm wondering if I should add fixed income to smooth the ride during volatility. If so, what allocation and what ETFs do you recommend? In other words, I'm 100% in stocks now. Um and then you mentioned something about smoothing the ride during volatility. Should I add some fixed income? What do you say to this?

SPEAKER_01 14:09

Probably. I mean, you're eight years or so away from um sorry, you're eight years or so away from you know pulling some money out of that account, so you should probably add a little bit at least. Maybe 20% at least? At least 10, 20 percent. And she asked what kind of ETFs to use. I mean, really any total bond fund. If it sounds like you like Avantis, so you can take one of theirs or you can do BND or um a dimensional fund, but definitely would add a little bit in there.

SPEAKER_00 14:34

Aaron Powell Yeah, this is and and an HSA, by the way, if you had an emergency that your plan didn't cover, that's where you could draw the money from. You wouldn't want to have it 100% equity anytime, I don't think, because you want something that's in something stable assuming an issue comes along. Not that it will, but it could. And if the market was down, let's say 20%, and you had to take the money out, that's not ideal. If you had some fixed income, there'd be a pot to pull from that would not have moved around as much, although we could don't have to go back beyond 2022 to remember when stocks and both bonds both lost money. So I'd probably my take would be maybe an 80-20. I love your idea of a total bond kind of situation. Again, the idea here is to hope to make five or six percent a year from capital gains, hope to get paid three or four percent a year in interest, uh, but it's kind of the place, the stability for your portfolio, which I not that you're old at 57, because doggone it, you're not. I could say that now. Uh, but you should have some stable. And by the way, who knows with employment? Because we just met with somebody who's a little older than you, and she said, I don't know how much longer they're going to keep me around. This is something to consider as you get older because you want to have some of your investments there for you in case something went wrong. So good answer, Roxy. We got another one from Blaine Washington up on the border. Ronald writes, hi Don and Tom, looking at long-term performance between money market funds, VMFXX, sounds like a van yard product, versus total bond, BND. It looks like money markets funds with less risk are a better investment for fixed income portion of portfolios. What am I missing? What are they missing, Roxy?

SPEAKER_01 16:13

Well, first of all, I don't think VMFXX compared to BND and the historical returns that are available, key point available.

SPEAKER_00 16:22

Over the long haul.

SPEAKER_01 16:23

Are a fair comparison. Just because VMFXX, you can go back to 1981, I believe, is when it was created. Um and if you do that, it takes into account the high interest rate environment of the 1980s. Yep. And those money market funds have a lot of correlation to the interest rate environment. And BND, it's an ETF, it's fairly new compared to that money market fund. We only have data going back to 2007. So the first thing you'd have to do if you're comparing anything is make sure you're looking at apples to apples, and so you're looking at the same time period. So you have to use some proxies. And when we do that with money market funds, you can look at three-month T-bills, for example, and the 30-year average return is trailing behind inflation rates. Trevor Burrus, Jr. Which is what you'd expect.

SPEAKER_00 17:12

Yeah. These are very short-term instruments and they're not designed to keep up with inflation. Trevor Burrus, Jr.

SPEAKER_01 17:17

Yeah. And bonds, when you look back, like at 10-year treasuries and you look back the 30-year average, you're looking at 3 to 5 percent in general. So it still stands that your short-term reserves can be in something like a money market fund, especially when interest rates are decent and you can get a little bit of a yield. But over the long run, bonds for your fixed income portion of your retirement portfolio still make more sense than those money market funds.

SPEAKER_00 17:42

So to be in a total bond portfolio, again, with the hope of making interest of, let's just say in today's world, 4% versus the short-term money market where you still could be making 4%, but over the long haul you have not. So again, if you're looking for stability and a little bit of gain, it probably the BND is the better way to go. If you're really looking, as you said, for something very short-term, don't want to mess around with it, don't want to see any volatility, which you're really not going to in the money market, maybe a very tiny, tiny, tiny bit, that would be the option there. So I really like the money market for the short-term emergency money, a total bond uh for the longer-term stability in your retirement accounts, for example. It could be in your brokerage if you had to have it. Would that make sense? Yeah.

Understanding Market Volatility

SPEAKER_01 18:29

Yeah. I mean, you'll just look at the term, right? So it makes a lot more sense. The longer-term bonds are gonna have slightly higher returns because it's a little bit more risk. Yep. And the that's why money market funds are gonna be lower on average over the long run long run because they track basically those three-month T-bills.

SPEAKER_00 18:46

Exactly. Great answer. So, okay, before we let you get away, uh again just met with somebody, so it's top of mind, but uh they were saying, I'm hearing everywhere that the market's gonna go down forty percent, I'm gonna lose forty percent of my money. Uh so that's one question that's come up recently because we've had some market volatility. This always is how bad is it gonna be this time? Well, we don't know how bad it's gonna be. Yeah. And the answer is your portfolio should be built for however bad it can get. Yeah. And it might get bad. But what are people asking you about on a regular basis?

SPEAKER_01 19:15

Well, I think over the last few years there's been a lot of uh political risk concern, I guess, but the market has been doing really well over the last few years. So especially now, I think a lot of geopolitical questions or risk, you know, and questions around that and what that looks like for their portfolio and what that looks like for their plan. Um and, you know, we just have to remind folks that although we may have not seen exactly what we're seeing now, we have seen times of geopolitical volatility and risk in the market and always go back to the plan. I mean, if you're doing a plan right and it's not just, you know, on a spreadsheet, you're doing some sort of Monte Carlo analysis where you run a thousand different scenarios of what could happen in the market. So you've one of those scenarios is going to mirror what we're going to see in the future. And so you make sure that you're looking at the plan and remember that we're accounting for all that different, all those different uh scenarios.

SPEAKER_00 20:13

I just talked to somebody yesterday who had no idea what a plan was. Uh she's been an investor for a long time, a number of v investment ideas. I'm taking some dividends here, I'm doing this and this and this. And I said, Well, what rate of return are you trying to achieve? How much risk are you willing to take? Never considered that. So while we think we talk about plan, plan, plan, plan, can I say it? Plan. Many people think that's not investing. Investing is picking the right stocks, knowing when to be in and out of the market. I try to suggest, and I know you do the same, that's all going to come or go, whether it's geopolitical risk, whether it's interest rate risk, whatever those things are coming along. That's the background. You've got the plan, you've got the guardrails in place, and you don't really care about that stuff.

SPEAKER_01 20:56

Yeah. You can't just plan on a linear basis. You have to plan for worst case and best case, and that's what the Mart Monte Carlo helps do.

SPEAKER_00 21:03

And speaking of help, before we let you get away, um Roxy does talk to people every day, helps many of our talking real money listeners. And as you know, on the program we promote the fact that some work we do is free, uh, which includes a portfolio analysis. So we actually will take all your holdings, help you show you uh it's a great program, how diversified you are, how much risk you're taking, how much you're paying others. There's a lot of insight that goes it comes away from that report. That's absolutely free, and there's no obligation. But the part that people are always curious about Roxy is, because Don promotes this, then you get one hour with an advisor. What can you what can you learn from Roxy in one hour of a discussion if you don't want to hire us? What what what do you get out of that sort of free offer?

SPEAKER_01 21:49

Yeah. Well, first of all, we talk to people all the time for free, and it's really interesting and fun for us just to have conversations and get to know our listeners. Um and it really depends on the situation. So what are people looking to get out of the conversation? Some people just might have a quick question about their portfolio, so we'll give you that advice and kind of send you on on their on your way. Some people need more in-depth help, so really figuring out and is it gonna all come together and make sense for my retirement and how they can think about it and what they need to think about as they enter this next chapter. So you can get a lot out of that hour and at least at the very minimum it sends you in the right direction in terms of what your next step should be.

Conclusion and Resources

SPEAKER_00 22:29

And it gets you do get to test the brain trust for that period of time. So stu you have a list of I ran into a guy once who had 17 questions. Uh I said, you better hurry, because we only got an hour. Um and and yes, we don't we don't just the the clock doesn't run out and the phone disconnect at an hour, so we spend more time. But you do get those questions answered. You do get to talk to somebody who does this every day and is uh full-time fiduciary but also planning centric, because it gets back to what I just mentioned before, where somebody's had an advisor for a long time and the advisor's never even said, Hey, we really should figure out what rate of return you're trying to achieve here, what we're trying to do with your money, that hasn't happened. Every person needs to do that before they invest one single dime. I don't care if you're six or sixty. You gotta know that before you put anything in, and and people overlook that. Look, thank you for your time. By the way, if you want that, you go to talkingrealmoney.com and click on meet an advisor. Pretty simple, fill out the form. You could even type want to meet with Roxy at the bottom of it. So um we're busy, but we're always happy to take your questions and calls. We want to do that. Questions, easy again, talkingrealmoney.com. Ask a question. And uh you can also call them in. We do we've been doing more and more of the uh since we're no longer doing the live local radio show, we're doing more and more calls where we talk to people, so we still have the interaction because we really enjoy that. Roxy, thank you very much for all of this and your continuing hard work and and uh bubbling uh optimistic attitude. We love that.

SPEAKER_01 23:53

It's a lot of fun.

SPEAKER_00 23:54

Good to have you back on here. Good to have all of you joining us, and you know it doesn't matter what day it is because we're gonna be sitting around here talking real money.

SPEAKER_02 24:03

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