George Kamel - Avoid These Investing Traps At All Costs

Episode Date: April 5, 2024

💵 Sign up for EveryDollar today. Create a free budget!  If you fall for the trends, you’ll fall for the traps—especially when it comes to investing. In today’s video, find out why some popular investing traps are so terrible, and the smart, simple way to invest to build real wealth.  Next Steps  📗 Order George Kamel’s new book, Breaking Free From Broke.  📺 Watch: Why Is No One Talking About America’s Wealth Killer? Offers From Today's Sponsors  This episode is sponsored by Tello, a mobile service plan designed to save you money. Go to tello.com/George for $5 off your first month of Tello’s unlimited data plan.   🎙️ The Ramsey Show    🍸 Smart Money Happy Hour  💡 The Rachel Cruze Show  💸 The Ramsey Show Highlights  🧠 The Dr. John Delony Show  💼 The Ken Coleman Show  📈 The EntreLeadership Podcast     Ramsey Solutions Privacy Policy  Learn more about your ad choices. Visit megaphone.fm/adchoices

I say it all the time. Dan and Shea are this generation's Rascal Flats. But that's neither here nor there, and I'm not making a whole video about it. Don't worry. Thank God. Today's video was about another phrase. You've probably heard me say a lot. If you fall for the trends, you'll fall for the traps, especially when it comes to investing.

And let me tell you, there's plenty of investment traps out there. You can find them pretty much anywhere. Instagram, TikTok, YouTube, cable news, TV commercials, and even text messages from that guy you were sort of knew in college who suddenly wants to meet up for coffee because a friend said you'd be, Quote, a good person to connect with? We all know what that means. First, it's coffee, next it's LinkedIn. Next thing you know, you're hooked in an MLM for the rest of your life.

I ain't falling for that again. So today, we'll go over some common investing traps, and I'll reveal why they suck so you can avoid them like the plague and focus on investing the right way. But before we jump in, like, subscribe, and share this video with all the Rascal Flats fans in your life,

because life is a highway, and they are going the wrong direction. Okay, here we go. The first investing trap on our list is a bit controversial. Amateur finance bros are still pushing this all over social media, despite the fact that so many people have lost a but ton of money on it. And that is cryptocurrency. Now, if you ask me, cryptocurrency is just Mary Kay for young men.

And here's what I mean. The people who are into crypto are obsessed, much like the people who are into multi-level marketing schemes. And if you're not on board, you just don't get it. On top of that, the product and profit are both hype-driven. Crypto involves high hopes of making big bucks, and it's more about recruiting in sales than the value of the actual product. Think about it. If nobody believed crypto would be a thing in five years, nobody would buy it. Everyone would sell it, and it would end up being worth nothing. So, of course, crypto bros want you to think it's going to take off. And I know at this point you probably think I have a tattoo in my lower back that says, crypto sucks. But I'm actually not anti-crypto. If you're debt-free, you got an emergency fund, you're already investing 15% into retirement accounts. Then and only then would it be okay to use some of your fund money and bet it on crypto. Just know, it's not actual investing. This is speculating. You're playing virtual roulette, so don't count. on this to provide retirement income or set you free to where you never have to work again.

Free? He will never be free. All right, the next investing trap on our list is so ridiculous. It reminds me of that thing where you can pay actual money to name a star or like name a rat after your ex, a.k.a. Not a smart move, but pretty funny. It's not funny. I'm talking about NFTs, non-fungible tokens and don't you dare try to fund them. No funging. No touchy. No touchy.

When you buy an NFT, you get a unique digital. token that represents a unique digital asset, like a painting of a frog smoking a cigar on a tightrope. But here's the deal. NFTs are more of a useless flex of, quote, ownership than an actual investment. Yeah, maybe you get bragging rights that digital painting, but the only chance you have of making money on an NFT is if another sucker comes along who's willing to pay more than you did for that digital cigar smoking amphibium. So don't waste your money on NFTs unless you just enjoy wasting money. Just because you want it doesn't mean it can happen. Okay, the next investing trap may come as a surprise to you, because a lot of people who do this think they're being smart

and responsible with their money, and some even believe it's the best way to pass on generational wealth thanks to phony financial gurus on social media. What I'm talking about here is permanent life insurance. The types you may have heard about are universal life, indexed universal life, variable universal life, and whole life. Not to be confused with whole grain life, which is delicious. And cinnamon life, even better. S-tier. Chef's Kiss. All of these insurance types have a cash value portion, which is what insurance agents promote as the great investment. They pitch some incredible benefits like risk-free growth, tax-free inheritance, and infinite banking.

But permanent life insurance as a wealth-building tool is just a legal scam peddled by insurance agents posing as financial advisors. And it gives them fat commissions while locking you into years of high costs. And get this, if you stop contributing, they'll pull the money from the cash value that you've accumulated to pay for the insurance. And when the balance hits zero, the entire investment is gone. And so is the life insurance. And most of the time, if you die, your cash value doesn't even go to your family.

It goes to the insurance company. Call it a parting gift or a scam. Either one. It's a scam. This will not stand. Permanent life insurance is a really crappy financial product. So avoid it like you avoid the guy at Home Depot who totally went to your high school, but you have no idea who he is. You just go, hey, uh, hey, buddy, nice, uh, nice paintbrush you got there.

Who are you again? So, should you have life insurance? Sure, but you should get one kind and one kind only, term life insurance. Because remember, the only purpose of life insurance is to replace your income if you die. And term life insurance is a fraction of the cost and keeps your insurance separate from your wealth building, the way it should be. Okay, the next investment trap is one that's pretty easy to fall into, thanks to tons of smartphone apps out there like Robin Hood. And that trap is investing in single stocks. Single stocks represent shares, or tiny pieces of ownership, of one company.

And when a company goes public, it sells these shares to investors, to pay for expenses related to growing the business. Over time, hopefully the value of the stock grows and produces a return on your investment. So you bought the stock at $40. Now that same stock is worth $80. That would be cool. But here's the deal. Single stocks can be super volatile.

And a lot of people who buy them are just trying to time the market, buying stocks right before they think share prices are about to go up. That is a bad plan. Don't get me wrong. I'm a huge fan of the stock market. But there's a much better way to invest in stocks. And that's with something called mutual funds. With mutual funds, a group of investors, like you,

pool their money together to buy stocks from 90 to 200 companies chosen by a professional fund manager. They're way more diverse and way less risky than betting everything on one company, like Twitter. Elon knows what I'm talking about. You know what? That actually happened. Of course it happened.

Think of it like this. Single stocks are like betting all of your money on a single racehorse. Mutual funds let you own the race track. Giddy up. That's my best Kramer. I know it's not great. but it's a start. I think the cadence was there and the little pop at the end was nice. Giddyup.

Before we get to the next investing trap, there's another trap that's keeping you broke, and that's paying astronomical prices for your cell phone plan. It's 2024, people. We got options out there, and one of the best options is Telo. They're a mobile service provider designed to save you money, and they're a sponsor of today's episode. And they're sticking it to big wireless with flexible, affordable phone plans with the same reliable coverage and features as the big guys. In fact, they run on T-Mobile's network, so you're guaranteed some sweet, sweet high-speed data. So how affordable you ask?

Well, their plans start at just five bucks a month and go up to $25 a month for their unlimited everything plan, which is a freaking sweet deal. Not only you get high-speed data, but it also includes a hotspot. And here's the cool part. No contract, and you're free to upgrade and downgrade any time you want. They're that flexible. So go to tello.com slash George or click the link in the description and sign up to get $5 off Tello's unlimited data plan for the first. first month of service. That's tello.com slash George. You can tell them I sent you, but they'll know because you use the link. So I guess you don't have to tell them. All right, back to the list.

Much like the last investing trap, the next one on the list has become popular in recent years because of investing apps. And that trap is microinvesting. Not to be confused with micro investing, which is where you own the entire collection of dirty jobs on DVD and hope it goes up in value over time, which it will. The microinvesting I'm talking about is a strategy that allows people to invest tiny amounts of money through mobile apps like Acorn, Stash, and Robin Hood. Now, many of these apps will automatically round up your purchases and invest spare change or make automatic transfers to investments. And listen, I'm all for investing, but not like this. Investing spare change is like picking up spare change. It's not a bad habit, but you'll never

build wealth doing it. So remember this. Micro investing leads to micro results. Put that on a shirt and sell it on at sea. So what do you do instead? Invest 15% of your income into a tax advantage retirement account because that will do way more than investing 15 cents every time you buy a cheesy beef cordita crunch supreme. All right, next investing trap is not necessarily a bad thing. It just doesn't have a very good ROI and there's better places to put your money. The name? Bonds. Government bonds. Now, bonds are loans that corporations or governments sell to investors. Think of these as IOUs on a set schedule. So investors, like you, buy bonds and get their money back plus some interest. Since they're often backed by governments and guarantee a steady return,

bonds are seen as a safe investment and attract people who get spooked by market volatility. Sorry. It's just you. I thought you were market volatility. Apologies. Why would you think that? Anyway, investing in bonds is like trying to run a marathon by crawling. Sure, you're not going to trip and fall, but moving that slow will hurt your chances of ever finishing. You probably won't even make it to the first station where they give you water in a tiny cup and strawberry-flavored goo.

Now, the goal of investing is to grow your money. not just to keep up with inflation. So stick to mutual funds and index funds and invest for the long haul. Your future self? Well, thank you when you cross that finish line of retirement and collapse from having so much money. Okay, the metaphor breaks down a little bit with this marathon stuff, but you get what I'm saying.

Don't tie up too much of your money in bonds. No, no, I'm not doing it. I'm not doing the joke again. Fine government bonds. I think that was going to be, it's going to be flat. It's going to be flat. And everyone, all right, it's your choice, editors. your funeral.

I'm willing to take that risk. Okay, this next one is very popular right now, thanks in part to a ruling from the Supreme Court that lets states call the shots on this very specific type of gambling. What I'm talking about is sports betting. Take the already addictive nature of gambling, combine it with the ease of mobile apps, add in some peer pressure from your sports-loving friends,

throw in the odds stacked against you by a professional bookie, and that is a recipe for disaster. Look, your odds of making serious money through sports betting is seriously low. And if you ask me, sports betting is just socially acceptable gambling disguised as entertainment. It's not fandom, it's financially dumb. So stay away from sports betting and all the apps that go along with it. Just enjoy the freaking game with De Bois. Okay, it's time for the last investing trap on the list and this is something you can find all over TV these days. And that is precious metals. Not to be confused with precious moments

porcelain figurines, which I would also consider a bad investment and creepy. Precious metals are the rare and valuable metals like gold, silver, and platinum that investors buy as a hedge against inflated and currency devaluation. And you've probably heard people on social media or TV saying stuff like, you got to buy gold, it's going to save you during the economic collapse. It's all coming down. But truthfully, that advice is like a Zach Brown band song. Sounds great at first, but when you really look at the details, it doesn't make much sense.

So let's say you bought a thousand bucks worth of gold in the year in 1989. Well, that thousand bucks would have bought 2.6 ounces of gold back then, and would now be worth $5,000, not too shabby. Now let's say you invested the same $1,000 into the S&P 5,000, that same year. You would have gotten about 3.5 shares for your money. And today, those shares would be worth over $15,000. That is three times the return of gold. So the stock market is a much better investment. You don't need a hedge against inflation because what are you going to do with all that gold when it all comes crashing down? You're going to need to barter for food, fuel, and ammo. Okay? Nobody

wants your gold. And besides, the precious metals industry is rife with scams and fraud. So TLDR, precious metals are fear-based investments with poor returns sold by opportunistic. fear mongers. There, I said it, and it feels good to say mongers. Not every day you get to do that. When you look at these bad investments we've talked about, they all have something in common. And I call these the three stooges of wealth building. Greed, fear, and pride. Greed can lead people to make some really dumb decisions. And just think about how many get-rich, quick schemes and stupid investments are based on fear, either of the economy crashing or the fomo of missing out on crazy profits. And the prideful investors tend to be the ones who get their butts handed to them. They'll time the

market because they think they can predict the future, or they'll place a risky bet because they think they're smarter than the bookies. Or they'll put all of their money into crypto instead of retirement because they, quote, understand the blockchain technology. But trust me, the humble investor will beat the prideful investor in the end. This is tortoise versus hair, so choose your character wisely. P.S., if I'm you, pick the tortoise. The tortoise ends up winning. I like turtles. All you need to build wealth like a humble turtle is a tax advantage retirement account, like your company 401k and a Roth IRA. And you can sprinkle in some index funds. and paid for real estate in there if you'd like.

That tried and true boring stuff is what's going to win in the end and give you the most peace along the way. And don't get distracted by all the shiny things out there, because if you fall for the trends, you'll fall for the traps. And speaking of traps, do you know about America's number one wealth killer? Well, check out this video to make sure it's not keeping you broke. Thanks for watching. We'll see you next time.