George Kamel - Investing for Beginners

Episode Date: June 7, 2023

Today I'm gonna cover the basics of investing, so you’ll know how to invest the smart way–the way that will set you up to build real wealth. How to Start Investing: A Beginner's Guide Ramsey Solutions Privacy Policy Learn more about your ad choices. Visit megaphone.fm/adchoices

What's up guys, George Camel here, and today we're talking about investing. Something that, to a lot of people, can seem confusing and mysterious. Like, how they get the essence into a can of LaCroix? Seriously, what even is essence? How are they making it? Where do they get it from? Anyway, people have all kinds of questions when it comes to investing. Where should I put my money?

How much should I invest? When should I start? Can I retire early if I sell this collectible SpongeBob Pez dispenser? Lots of questions. And today, we're going to cover the basics of investing, so you'll know how to invest the smart way, the way that will set you up to build a real wealth. And to start, a great simple way to invest in your future

is by clicking the like, share, and subscribe buttons. Go on. Do it for your future self. Your future self will thank you, will give you a high-five in like a parallel universe, and remember, sharing is caring. To share is to care. Now, before we jump in, there's a lot of confusion when it comes to investing.

I mean, a lot of people think of 401k is just a really long race. And people, when they think of Roth, they think that's my favorite character from Frinth. No, they do. So I headed to the streets of Nashville to see just how much people actually know about investing. Okay, so let's talk about investing. What is the best way to invest your money? Probably in like one of the accounts that doesn't get taxed, like eventually.

So a tax advantage account? Right. Would that be like a retirement account? Yeah. Okay. I don't even really know about me. How are you going to retire one day? Oh, I have a 401K.

That's investing. Oh. So you already have a job. That's exactly. Absolutely. We just didn't know we were investing. That's a good problem to happen. Yeah.

There's a few different things. I think we love things that are diversified, so making sure we have a little bit of money everywhere. I've heard of stocks, but I don't know much about them. I have a Roth IRA. That's what I'm doing right now. Love it. And I went to some wealth management advisors,

and I said, tell me what to do, because I don't know what to do. Kind of a big, I like to invest in real estate. Cool. We're kind of big on that. We invest in a lot of homes and rentals. What do you think the right age? to invest or the right financial spot where you're ready to invest? Around my age or within a couple years.

Okay, so kind of out of college, starting to work. As soon as you're born. Parents should start putting money in there for you, certainly when you start working for yourself. You know, come your teens, your early 20s, you gotta put some contributions away because it just will continue to build. When they get their first job?

Well, actually, I don't know. That's good. I think we gotta have some income to invest. Right, okay, but some people, like when you're 16, I feel like you don't need to invest, right? Or I don't know. As soon as you have enough income to be able to invest, then you should try to put as much towards it as possible.

I think the best way is just to invest now while you're young, feel a little bit more aggressive and hopefully set yourself up for the future. I guess I'm investing into myself at this point, just saving the percentages of my checks biweekly. But I started doing that when I was around 20, when I started to really, really work. And is there a certain percentage of someone's income you would say to invest? Not so much a percentage.

I mean, you need to be able to live. and live comfortably and not put yourself in a situation where you're just focusing on retiring instead of living it now? 20%. That's a good goal. That's fantastic. Well, again, I think it depends on your financial situation. I know that my wife and I personally, we each invest around like 10% of our salaries. What I sort of hope for is about 30% spending, 30% saving, 30% around sort of charity and giving and some other things. 10%? And as much as much as, possible, but it seems like 10 or 15% would be pretty good. Nice.

If you had to guess the difference between a 401k and a Roth IRA, what would you say? The 401k is retirement and the Roth is just saving? I don't know. That was close. That was pretty good. What is the answer? They're both retirement. Okay.

But one is with your employer. Oh, okay. And the 401 is outside of your employer. Well, the 401k usually company matches. IRAs are more, you just put your money in there and there's more rules, I think, to them. Okay. I think. I don't know. I'm not very smart when it comes to all that stuff.

You're very smart. My financial advisor that I go to, he said the only difference between a 401k essentially and a IRA, depending on if you do a Roth or traditional, is you can't get sued for your 401k, but you can get sued for your IRA. I'm going to do some homework after this. You got homework? I got to call my dad and ask him now. I feel like I should know these things.

Yeah. We should get them on speaker. I'm like, Dad, what am I investing in? I know. Okay. Well, those responses were all over the place. And for a lot of people, investing is a little fuzzy. Kind of like the six-week-old raspberries you found in the back of your fridge. Those things get as fuzzy as a middle school mustache. I'm not sure which one's grosser. You guys... Now, most of us know we should be investing, but a lot of people just don't know where to start. And I get it.

It can all seem a little overwhelming. Stock portfolios, Roth 401Ks, crypto, precious metals, NFTs, index funds, index cards, Cardi B, B movie, Bonn movie, Barry Bonds, Treasury bonds, covalent bonds, bond bonds, gold bond, medicated powder. All right! And I get it! It's a lot. It's all I'm saying.

But I've got some good news. It's actually a lot simpler than you might think. So let's start with a simple definition of investing. Investing is just putting your money into something. with the expectation that it will increase over time. Now, there's lots of ways to do this, some better than others, and we'll get to that. But first things first, before you start investing, make sure you're financially ready to invest. What does that look like?

Two things. First, you should be out of any and all consumer debt, not counting a mortgage. That includes student loans, car loans, credit card debt, medical debt, and that Venmo request from Gary for that bloom and onion you guys split. It all needs to be paid off, and you know Gary didn't forget. He's not shy to hit that reminder button on Venmo. And here's why. If your income is tied up in monthly debt payments, it's going to be really hard to build wealth. The point is, building wealth when you're giving away your income to debt is a lost cause.

You've got to have the margin to invest, and that means no debt. Second, you should have three to six months of expenses saved up in an emergency fund. So debt-free plus emergency fund equals ready to invest. So once you're financially ready, I recommend investing 15% of your household income into retirement. And where should you invest this 15%? The actual answer is very simple. simple. All you need to build wealth is a 401k and an IRA. Now here's how I know. In 2019, the research team here at Ramsey Solutions conducted a national study of millionaire. And they called it the national

study of millionaires. Oh, that's original. So this was the largest study of net worth ever done with over 10,000 millionaires. And it gave us a real clear picture of how most millionaires built their seven-figure net worth. And here was a big shocker. The number one investment vehicle that helped them become millionaires was an employer-sponsored retirement plan, like a 401k. Yep. Not crypto, not gold, not inheritance from Uncle Jerry, just boring old retirement plans. And it's just boring enough that it makes me think, I could do that, and I think you can too. So if you want to be a millionaire, do what millionaires did. And here's a five-word investing strategy that sums up everything I believe when it comes to investing.

Match beats Roth, beats traditional. That's it. So let's walk through this. For starters, first, you would invest up to the match in your 401k if you have one. Now, if your military or government, you might have something called a TSP. If you're a teacher, you'll have something called a 403B. They're all very similar. Now, the employer match is a 100% return on your investment. It's basically free money. Who wants some free money, shanties? So if your employer matches 6%, you invest 6%, they give you 6%. Boom, free money. It's an awesome and amazing benefit to have. Thanks, HR. They don't get thanked a lot. I'm just trying to be nice to HR. They're trying. Usually they just get complaints about Gary and shipping. You know what you did, Gary.

and we'll never forgive you. So if you have the option of a traditional 401k, invest up to the match, then move on to Roth options. Now, what does Roth mean? What more do you want? It's simple. Well, Roth just means that you're investing after tax dollars, that growth tax deferred, that you can then withdraw tax free in retirement.

Basically, you're paying taxes on the money now on the front end, so you don't have to pay taxes on it when you take it out in retirement. So if you have a million dollars in Roth accounts at retirement, you get a million dollars to spend and use without Uncle Sam ever touching it again. And that matters because now that I'm being smart with my money, there's a good chance I'll be in a higher tax bracket when I retire. Since Roth IRAs are individual retirement accounts not connected to your employer, you've got to handle opening that account. And I'll post a link in the description below that outlines exactly how to do that. So we're investing up to the match, then we're moving on to the Roth IRA.

Now, if you max out your Roth IRA at the contribution limit and you're still not at 15% of your household income, then we're going to go back to that workplace retirement plan until we hit 15%. Now, side note here, there is such a thing as a Roth 401K. And if your employer offers that, great. This just got a whole lot simpler. If you've got good investment options with low fees, you can invest your entire 15% into that Roth 401k and be done. Now, you want to make sure you're investing in growth stock mutual funds

inside of these retirement accounts. Because with growth stock mutual funds, you're spreading your money out over a bunch of different companies instead of just buying stock in one. And this is what the finance bros wearing Patagonia vests like to call diversification. And it helps you avoid. the risks that come from single stocks. Now you might be wondering, can I really become a millionaire just by using my basic retirement plans? Well, the answer is yes. And here's the secret to how this

works. It's a little thing called compound interest. What is compound interest? Albert Einstein supposedly once called compound interest the eighth wonder of the world. And it's easy to see why. Did he really say that? Did Albert really seems a little suss? There's no, we don't have record. Okay, I guess we'll never know. Here's how compound interest works. You invest some money, and that money earns interest. Then that bigger pile of money earns more interest. Then that even bigger pile of money earns even more interest. And basically, you're earning interest on top of interest, on top of interest.

So let's say you invest $10,000 and you get a 10% return on that money. You just made $1,000. So after one year, you now have $11,000. Then the next year, you get a 10% return again on that $11,000, making you $1,100. That brings your total to $12,100. And if you repeat this process over a long period of time, you get the power compound growth, which makes you way more money than you put in to begin with. And Ben Franklin explained it best when he said, money makes money.

And the money that money makes money makes money. Well said, Ben, well said. How do we know Ben said that? They didn't have 401Ks when he was around? So let's look at an example. Let's say there's a couple. We'll call him Bill and Susie because those are believable names, right? And let's say their combined household income is $65,000, which is actually

below the 70,000 median household income in America. Now, let's say they invest 15% of that $65,000 income into growth stock mutual funds inside of their Roth 401ks. That comes out to about $800 a month and just under $10,000 per year. Now, let's pretend they never get an employer match, which is unlikely because most employers do, and they work their whole lives making that below average income and never get a raise for 30 years. Do better, Bill and Susie. Do better.

But let's rent some numbers and see what those accounts will look like investing $800 a month over 30 years with the average return of 10 to 12%. If their return is 10%, they retire with a nice little nest egg of $1.8 million. If they got 11%, it would be $2.2 million. And if they get a 12% return, that comes out to $2.8 million. And here's the kicker.

Out of that $2.8 million, how much do you think Bill and Susie actually contributed themselves? Less than $300,000. That is insane. That was insane. Clip that. The rest of that was capital growth.

compound growth, giving them this huge rate of return. And it happened because they invested over a long period of time. They put in 300 grand over 30 years. It turned into 2.8 million. That's amazing. Now, even if you argue about the rates of return or expense ratios or whatever else you want to nerd out about, you've got to admit that even if I'm half wrong in my assumptions,

and I'm not, you'll still be a millionaire. But here's what's more likely to happen in reality. Bill and Susie's income will go up over time, which means they increase the amount they're investing. They'll get an employer match, which means they'll get free money added to their investing total. And if they're following the Ramsey baby steps, which are the same steps I use to go from broke to millionaire, they're going to pay off their house in under 15 years.

And that house will appreciate in value over time. Oh, and by the way, once the house is paid off, they can increase investing even more beyond 15%. And all of this means they're going to have way more money than what I just calculated. And beyond the financial benefit, think about this. Bill and Susie will also experience a healthier marriage that's more likely to last, because they're on the same page financially with less money fights and plenty of money in the bank. They're also going to become more generous because they have more margin to be generous. That all sounds pretty good, right?

So what did we learn today? Well, for starters, don't invest until you're debt-free with three to six months of expenses in an emergency fund. And what do you invest in? Growth stock mutual funds inside of retirement plans like 401Ks or IRAs. Remember, Roth versions are the best. Pay taxes now, no taxes later. And if your company offers a match, contribute up to that amount, then move on to the Roth IRA. Once that's maxed out, back to the 401k until you hit 15%.

All of that will set you on a path to building real wealth. And here's the simple way to remember all this. Match beats Roth, beats traditional. Now, if you've got a really high income and let's say you max out all of your retirement accounts, you're not out of luck. You can look into options like backdoor Roth IRAs, mega backdoor Roths, investing through your HSA and taxable brokerage accounts. Comment below if you want to see a video on that in the future.

Oh, and regardless of where you're at in your financial journey, I recommend working with a financial advisor to help you understand what you're investing in and give you confidence as you build wealth. And if you want to get connected with financial advisors across the country that I trust, I'll drop a link below in the description. All right, people, hope this video is super helpful for you. If you want to dive a little deeper into the world of investing, be sure to check out the Ramsey Investing Hub.

It is chock full of articles and tools to help you build wealth the smart way. I'll drop a link to that below as well. And as always, be sure to like, subscribe, and share this with your friend who needs a little nudge to sell the overall. collectible Breaking Bad Pez dispenser and start investing the right way. Thanks for watching. I'll see you next time. Remember covalent bonds though? Those were the jam back in the day. I don't know why I liked those.