Epic Real Estate Investing - Wealth Traps Your Financial Planner Isn't Telling You About - Epic Wealth Wednesday | 259

Episode Date: April 26, 2017

In the years following WWII the American financial system was booming. It was a time when working hard and saving earnestly was enough to prepare for a quality retirement and the “American Dream” was never more accessible. The financial world has changed considerably since then and many investments once considered financially sound are now recognized as wealth traps. This episode of the Epic Wealth podcast we share a fresh approach to creating wealth - passive streams of income through real estate investing. Discover why you should ignore conventional financial advice that says save, save, save and build systems for cash flow instead! ______   The free course is new and improved!  To access to the two fastest and easiest strategies to a paycheck in real estate, go to FreeRealEstateInvestingCourse.com or text “FreeCourse” to 55678. What interests you most? • E.ducation • P.roperties • I.ncome • C.oaching       Learn more about your ad choices. Visit megaphone.fm/adchoices

And now, back to creating your epic wealth. All righty, we're back. And today we've discussed all kinds of great and fun and exciting new ideas, right? We've discussed how to or why to shift your focus from saving piles of cash to creating streams of cash on how that can increase your journey to financial freedom by 10. And we're now getting into certain traps. I mean, you make that shift and you are on your way, but there are certain traps that you need to avoid these wealth traps. So the first trap, big one, is saving money.

That's a trap. It absolutely is a trap. You know, after World War II, America boomed. Many of the returning soldiers, they returned in better health with better education than when they left. In the men's absence, women had learned new, valuable, workplace skills, and our manufacturing sector had become robust, right? We were booming. Medical technology advanced rapidly.

and improving the health and increasing longevity of people. Jobs were plentiful. The suburbs were booming. I mean, optimism was in the air. You could smell it. The U.S. was looked on favorably by the rest of the world. Do you remember that? And we had helped save the day.

The American people were on top of the world. Now, Europe, they were picking up the rubble. They were rebuilding their infrastructure and economies. They couldn't compete with the U.S. in technology or finance. Germany's science wizards had been lured to the U.S. to work here, and Japan limped along with the crippled economy. China was still largely a backwater nation, and Russia had lost over seven million of its citizens. The American economy boomed for decades without competition and with its powerful work ethic.

I mean, it wasn't too hard or difficult during these boom times to get a decent return on an exchange of time for your doctor. prosperity abounded. And the trappings of prosperity, they were apparent. I mean, we had telephones, washing machines, televisions, beautiful giant cars, airplanes, rocket ships. The sky was the limit. What we had learned from previous generations about saving money seemed more sensible than ever. This tried and true financial wisdom was simple and effective. Exchange your time for money and a job with a great company and religiously save a portion of those earnings. Buying a house and paying it off as fast as you can made a lot more sense in this era.

You worked a job for 30 to 40 years. You saved up a great big pile of money. You paid into Social Security and perhaps, you know, even were blessed with a pension when your working days were done. This plan worked. Worked for a long time. And most Americans did well with this advice until 1971. In 1971, everything changed.

There were a series of economic measures in that year dubbed the Nixon Shock. They were enacted by President Nixon, and the rules of money, they had changed forever. There were some good things and bad things about the Nixon shock measures. But one thing was certain. Saving money, saving money now became a lot less profitable. However, this truth was never really communicated to the American people. People just kept right on with that old, outdated, traditional, really just antiquated advice as a means to provide for their future.

Now, the main policy that struck a blow to our savings was leaving the gold standard. You know, prior to 1971, a U.S. dollar was directly convertible to gold. You know, since gold is a rare, tangible product, it holds its value. When currency is backed by gold called commodity currency, inflation, it's held in check. Now, to the contrary, or in contrast, I should say, fiat currency is simply banknotes printed by the government. It's not fixed in value by any objective standard because there's nothing backing it other than the belief of the people that are using it. Fiat currency, therefore, it's much more prone to inflation. Its value is significantly eroded over time as the government prints more and more to

bail itself out of one trouble or another. So, since 1913, when the Federal Reserve System was put in place, the cumulative rate of inflation of the U.S. dollar is 2,303.5%. something that would have cost you $20 in 1913. $20 in 1913 cost you $480.70 today. And this isn't just because stuff costs more. No, it's because your money is worth less. Because of our current Fiat system, our savings are eroded by inflation.

It's eroded by inflation over time. Now, another factor that made saving more problematic as time went on was the growing problem of longevity risk. You know, just after World War II, life expectancy was 62 years old. By 2010, the life expectancy was close to 80. You see, those extra years represent a lot more cash that the average retiree must save, that they must accumulate. medical expenses have also skyrocketed, adding to the financial costs of living longer. Honest estimates of for what the average retiree needs to achieve a manageable retirement, those estimates sit right around a million bucks.

That's more than as practical or even possible for most people. Now, I'm not saying that saving money as a principle is a terrible thing to do, but saving a loan will not get you where you want to go. If you are going to really retire, you're going to need to save a lot. And the problem with that is, you can end up scrimping for tomorrow while the most healthy and active years of your life

just fly by. You know, focusing so intensely on providing for your tomorrow, it can rob you of your enjoyment today. Is that the life that you want? Is it enough just to get back? by day after day, working for your someday, while being ground down in the present. What if, as the case with most Americans today,

you are not able to save enough? You're just not going to be able to retire. You're never going to be able to stop working. I mean, Walmart, they're sure to be hiring greeters. You could rely on the government, or you could rely on your church or your family to support you. You have to ask yourself, Is that the way you want to spend the end years of your life?

You could further double down on saving right now trying to catch up. In that case, what would you need to sacrifice right now? What would you have to give up? What would your family have to give up? What kind of life do you need to live right now in order to safely provide for your future, if that were your plan? Perhaps you've heard that you can save more effectively with a tax-deferred plan. I wish that were true, but the facts they just don't bear out.

And we'll discuss that in great detail a little later. But the point here is, wealth trap number one is the concept of saving money. If inflation doesn't get you, the longer years of your life will, and then both probably are going to crush you if saving money is your strategy. So that's wealth trap number one. Wealth trap number two. Budgeting. Got to have a budget, right?

You know, a lot of financial gurus, they stress reducing your expenses as one of the most important things you can do to become financially free. They teach you to cut out your daily Starbucks, for example, and then save and invest that four bucks a day. Here's the thing. It is important that you learn to be disciplined with your expenses. However, the bigger picture is that you're better served by focusing on how you can earn a dollar rather than on how you can save a nickel.

cutting expenses can certainly have a place in your overall financial plan, but it's a misguided approach to put all your focus and energy on that. Why not put more focus on increasing your production? Why doesn't anybody ever teach us to do that? You know, we're taught to live within our means, right? And that certainly is wise advice. The problem with it is that few people think in terms of increasing their means to live that advice. Instead, we always think in terms of decreasing our expenses.

By definition, this is a very limited approach. There are only so many expenses you can cut. But increasing your production, now that there, that's limitless. And I'm not saying to use this as a way to justify your expenses. No, be wise about your consumption. Be responsible. Be thoughtful, particularly as you are building your way to financial freedom. Don't buy a bunch of trips and toys and, you know, go out on nights on the town and just live it up and think,

hey, I'm just going to get up tomorrow and go earn more money to pay for it. Now, don't do that. That's what I'm saying. I want you to focus on increasing your production and your cash flow and then use your increased cash flow to purchase. more assets, then your assets can pay for your fun. Then your assets establish the new means of which you're supposed to live within. All righty. So wealth trap number one, saving money. Wealth trap number two, budgeting. And I'll be right back with more wealth traps right after this. Does your money work for you as hard as you do for it? If not, no worries. You do not have a

money problem. You merely have an idea problem. We're cashflow savvy.com and we'd like to share a new idea with you around income real estate that can transform your financial future and accelerate its arrival. Go to cashflow savvy.com and download a free investors package. Cashflow savvy.com. You do not have a money problem. Merely an idea problem. Cashflow savvy.com. More ideas. Less worries. cashflow savvy.com. And now, back to creating your epic wealth. All righty, we're back. And we are discussing the wealth traps

that are disguised as financial wisdom, the type of wisdom that we all follow. And these wealth traps, they interfere with your epic wealth creation. So wealth trap number one that we discussed was saving money. Yep, it's a trap. Wealth trap number two, budgeting.

Having a budget. Yep, that's a trap as well. And there are many more. We'll cover those over the coming weeks. But today we're going to finish off with this one. And this one is probably going to upset you a little bit. That one is maxing out your 401k. Yep, it's a trap.

You know, in 1978, a tiny part of a law called the Revenue Act made it possible to save money and defer the tax liability. Sounds good. But it wasn't planned out. It wasn't tested or really even thought through. But soon, this provision, known by its place in that, bill as line 401k became the nation's default retirement savings plan. And people, they adopted it with great hopes that they would soon be amassing these big giant piles of money on a tax-deferred basis. Sounds great. It looks good on paper even. In reality, 401K plans have been a complete

failure. Now, as I've mentioned today, the financial world was different, very different in the 30 years after World War II. The three pillars of retirement consisted of pensions, savings, and social security. All in all, the working population had great confidence in these three pillars and in their financial security in their elder years. Pensions, they were paid out by their employers. It was a fixed monthly benefit achieved after years of service to a company. Some people don't even know what a pension is today. And then banks offered a reasonable savings rate. And Uncle Sam promised to help out as well to fill in the gaps. Of course you'd be able to retire.

There wasn't a question. But within one generation, boom, all that is evaporated. Uncle Sam has been completely incompetent as a money manager. Social Security is going broke. It's only a matter of time. As it is, the monthly benefit for most people from Social Security is less than $2,000 a month. Now, that might work as a supplement,

but it's not going to provide any sort of manageable retirement on its own. The interest rates offered by banks and savings, accounts, they've plummeted. They go up and down, and perhaps they'll come back up to an acceptable level, but it won't likely ever be enough, as demonstrated in the savings wealth trap. Pensions have been largely abandoned in favor of 401K plans. Very few companies offer pensions because they are expensive compared to offering matched contributions to 401Ks. You know, in 1980, almost 85% of private industry employees benefited from a company pension plan. By 2011, less than 20% of workers benefited from them.

In that same time period, 401K participants grew from basically zero to more than 50 million people. Corporations, they love 401K plans. Why? Because all the risk is shifted to the employee. And the corporate employers, they pay out much less money.

It's cheaper for them. They even get a nice tax break for contributing to your plan. And this is all packaged up as a favor to you. You know, not many years from now, we're going to be looking back at the 401k fiasco and just shaking our heads and disgust as a society. We're going to wonder why we ever bought into it and how we could have ignored the evidence of its failure for so long.

I mean, how did this obscure section of the law become so prevalent and popular? Yet, this is what the average person is being sold every day. Max out your 401K. Keep stuffing money into that. sucker and everything's going to be right. The idea, it's only 30 years old. It's barely enough to get a sense

if it's going to work or not or how it's working. But now that we can see the initial results, it's crystal clear. 401Ks simply aren't working. And there are three reasons why. They fall into three categories. The first is that the 401K

idea, it's simply the contemporary version of the idea that if you just save enough money, you're going to be okay. Most people, they don't even know or care what they are even invested in. They simply are just comforted in that they are, in fact, saving money. This is not wise investing, it's wishful thinking. Even more importantly, it's not happening. People aren't generally able to save and grow nearly enough wealth in their 401ks to retire.

And here are the stats. I mean, the median 401k balance, the median 401k balance at retirement, age for the average American is right around $100,000, $100,000. That's about a tenth. That's one-tenth of what is needed for the average person to retire, quote-unquote, comfortably. Well, let's say that you're not average, right? Because you're among the higher income earners of society, and you earn over $100,000 a

year. Well, in that case, your 401k savings average right around the retirement age is $350,000. $350,000. That might seem like a big chunk of money to you, but it isn't. You aren't even halfway to the amount you're going to need to ensure your retirement with anything resembling your current lifestyle. You're not even halfway there.

The second reason why 401Ks are a disaster in the making is market risk. I mean, you are really exposed. The money could simply evaporate. If you are invested in a 401K, your future livelihood depends on consistent market gains in wise investing. Most people did not pick their plans with input from wise investment gurus. They simply went with the one that was provided. Can you rely on that outcome?

Market investing carries significant risk, and that risk is not even in your control. You have the possibility to gain more than you can in a standard savings account, but that that possibility comes with risk. You know, one of the first rules of investing is that you should never invest more than you can afford to lose. I mean, stories abound about people who put their financial faith in their 401k only to find it depleted by market risk. Just because it's a retirement plan doesn't mean that the market is going to cooperate. Many seem to take for granted that the market is just going to simply go up and up and up and up, and that's just not how it works. And losses, they're not easily regained.

Your dreams for your future, they can be devastated overnight. Now, the third area of concern for 401Ks, it's their cost. This is a biggie. And no one ever talks about this. In a frontline report aptly titled, The Retirement Gamble, John Bogle, CEO of Vanguard Investments,

he points out that the hidden fees, the small little hidden fees of just one and a half to two percent within the managed mutual funds we are all commonly sold in our 401ks. That can eat up over 60% of our potential earnings over the long term over the 30 to 40 years.

60% going to the fat cats. And he points out that the magic of compound interest that we're all sold and we're told to employ and use in our retirement strategy, it works both ways. It compounds with the costs as well. Mutual funds are a concept that was conceived for the benefit of the Wall Street bigwigs, not the nest egg builders like you and I. Somehow we were all sold on it or we had no other choice for our retirement planning. Most people have no idea about these costs.

And those people selling companies, the 401ks, are sure to make sure that ignorance continues. And that's why this show is here to help you stop paying that ignorance tax. But that's a tax you will continue to pay unless you do something about it. So stay tuned here each and every week and we're going to discuss what there is to do. I'm Matt Terrio and this is creating epic wealth, real estate investing for busy people. If opening up your financial statement each month is about as exciting as watching paint dry. The Epic Wealth Fund may be the next investment opportunity for you. The Epic Wealth Fund invests in distressed real estate and shares the profits with its shareholders.

If you're an accredited investor who has already enjoyed success elsewhere in their business or investing life, and you're seeking a broader exposure to real estate in your portfolio on a passive basis, The Epic Wealth Fund's executive summary is available for your review. Go to Epicwealthfund.com to review the funds executive summary. Epicwealthfund.com. Real estate investments involve a high degree of risk. Residential income and returns may vary and are not guaranteed. Past performance is no indication of future performance.

Nothing herein shall be construed as investment, tax, legal, or accounting advice. This podcast is a part of the C-suite radio network. For more top business podcasts, visit c-sweetradio.com. Thank you.