Money Rehab with Nicole Lapin - How To Enrich Your Future Self

Episode Date: May 22, 2024

In the second part of Nicole's conversation with Peter Mallouk (President and CEO of Creative Planning), they cover everything you need to know to enrich your future self: smart strategy for your retirement planning, protecting your assets in a trust and yes, your will.

I love hosting on Airbnb. It's a great way to bring in some extra cash. But I totally get it that it might sound overwhelming to start, or even too complicated, if, say, you want to put your summer home in Maine on Airbnb, but you live full-time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you.

I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at airbnb.com slash host. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no

maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits

apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. Yesterday, you heard the first part of my conversation with President and CEO of Creative Planning, Peter Malouk. We nerded out so hard that we had to set up a whole other interview just to tackle all of the topics we ran out of time to cover. In our first episode, we talked all about investing and real estate, and now it's time to talk about our golden years, retirement, trusts, and yes, your will. Here's part two of our conversation.

So another big part of adulting is taking care of your future self and prepping for retirement. So when it comes to prioritizing pre-tax versus post-tax retirement accounts, what should people keep in mind? I guess first, are tax rates going to get higher when you retire? And second, are you going to be in a lower tax income bracket when you retire? So how should we strategize for pre- and post-tax accounts? Yeah, this is really complicated. I wish the government didn't have all these retirement plans because it's hard to figure out like which plan should I max out first and where should I take money out first? So here are some basic rules that your listeners can follow that generally work for everybody. So one

is if you have a 401k at work and there is a match, you definitely should contribute the money up to the match. So a lot of jobs say, hey, if you put in a dollar, I'll match the dollar. The employer will match the dollar, sometimes up to 4%, 3%, 4% of your earnings. Well, you're getting 100% rate of return on that. If you put in $5,000 and your employer will put in five, nothing you do is going to beat that. You should definitely do that. After that, for most people, they're better off to contribute to a Roth IRA. So once you've done the match, open up a Roth IRA, you can contribute up to a certain amount if you make between 150 or so or less. There are some limits that start around the 150,000 or so mark, but anything you can contribute to the Roth, the max you can, it grows tax-free for the rest of your

life and comes out tax-free. If you're approaching retirement, then where you take money from has a lot to do with what your income tax bracket is. It's probably worth 15 minutes with your CPA to make sure you go to the right bucket first. It's crucial to decide which investments to buy within the taxable and non-taxable accounts as well. So how should folks start thinking about that? Well, different accounts come with different tax consequences. So for example, if you have a qualified account where you don't pay taxes like a 401k or a 403b or an IRA or a Roth IRA, the money in there grows tax-free. So we're not really worried about whatever tax consequences come from the investments because we're not going to pay any taxes. If we just go open a regular account, a taxable account, not an IRA or something like that at a Schwab or Fidelity, well, that's an account where we do care about the consequences. So if you think about usually in a taxable account, we'll want to buy stocks because stocks appreciate in value over time. If you buy McDonald's, Google, Nike today, hopefully 10 years from now,

they've at least all doubled. Well, what taxes did you pay along the way? Well, we're not paying any taxes on those stocks because all of that growth is unrealized. So until you sell, you don't pay a tax on the gain. So along the way, we're not paying taxes that allows our money to compound without being interrupted. And then you control when you sell. And when you sell, then you pay the tax. And that's the lowest tax you'll pay under the law, which is a capital gains rate.

So not only do you get to choose when to sell and you don't pay taxes along the way, but when you sell, at least today, the federal capital gains rate. So not only do you get to choose when to sell and you don't pay taxes along the way, but when you sell, at least today, the federal capital gains rate's 20%. That's the lowest tax you pay on any investment. In the IRA, we can put things, there's some investments that create income and income is taxed at ordinary income tax rates

and it comes at you every year. So for example, if you buy a high yield bond, it pays 7% income. You're collecting that every year, whether you want to or not, and you're paying taxes on it. So you're losing 20, 30% of that money just to taxes along the way. So take the things that create a lot of taxes, put them in accounts like your IRA, take the things that create very low taxes and only when you want to realize them and put those in your taxable account, you wind up with a far better after

tax outcome. You keep more of your money along the way. It's so, so important that you mentioned that because I don't think people realize that bonds are taxed at ordinary income. Yeah. I mean, I think people in general, if an investment brings you income, almost always it's taxed or income tax rates. Now there are municipal bonds that you don't pay certain taxes on, but for the most part, if you're lending somebody money, you're paying income taxes on that loan and a bond is just a loan. It doesn't matter if you're loaning the federal government, if you're loaning a corporation, if you're loaning a friend, in all those cases, the interest is coming at you as income and you're paying income tax rates. And what about mutual funds with all of the fees?

So mutual funds are really interesting and we really try to avoid them. And what about mutual funds with all of the fees? So mutual funds are really interesting and we really try to avoid them. And the reason is with a mutual fund, not only do you have a high chance of underperforming buying an index, but on top of that, every time that mutual fund manager trades, you pay taxes. So if the mutual fund manager buys a stock and sells it inside of a year, well, that's not capital gains rate because it happened in less than a year. It's now taxed at income tax rates. They might invest in things that produce a lot of income. They have a lot of turnover in the portfolio. So your statement might say, hey, this fund is up 10% this year. But after taxes, you might have 8%, 7%, or 6% because you're paying all the taxes from all of the activity of the mutual fund. Yeah, it's crazy. People think they're doing the nice, smart thing to invest in mutual funds. But yes, read below the headline

on those for sure. And I think savers, Peter, can get really stressed when they do hit retirement because now they have all this money that they saved up responsibly, but now they have to spend it. So what advice would you have around how to handle some of that anxiety? Well, what I found is the best investors, they're doing things like educating themselves. They tend to be very deliberate and systematic. Okay, I'm going to put money away. I'm going to put money away. I'm going to put money away. So then they get to retirement and they go, well, I just can't do this. I've for every day for 20, 30, 40, 50 years, I've been putting money away.

It's hard to flip it back on. But you know what? That's what it's there for. The whole reason you did it was to build up this pile of assets. You could become financially independent and somebody is going to spend every single one of those dollars.

So if you don't spend it, your heirs or your kids or your grandkids or somebody is going to spend it. So just do a financial plan. Make sure that you're spending within an amount that allows that portfolio to last your whole life, that you don't run out of money along the way, but allow yourself to enjoy it. That's why you started on that journey in the first place. Amen. I think the sweet spot is really somewhere between thinking you're going to live forever and you're going to die tomorrow

because both ends of the extreme are dangerous. I completely agree. Yeah. But you have to allow for the joy, even within all you can do all of the planning and do all of the right things. But the reason we're doing this is for joy and to live life. But when you get a little bit older, right, some of the financial independence does come with the nonfun, sexy stuff that we have to think about when we get older. Life insurance is a big one. There are two big types of life insurance, term life insurance and permanent life insurance. Can you first describe what the difference is between the two for our listeners? at what they're at. Permanent life insurance, you pay the insurance company money every month, let's say, and it's going to be there permanently for your whole life.

So whether you die tomorrow or you die when you're 104, that policy should be there and should pay the beneficiaries the money. A term insurance policy lasts for a term, a period of time. So if you buy the life insurance policy, you might say, hey, I'm buying this insurance for 10 years. That means if you die inside the 10 years, the heirs will collect the money. If you live past the 10 years, you live 10 years in one day, everybody gets zero. And so that's a very big difference between those two types of policies. You say that term is better for a majority of

people, right? Why is that? So basically think about why you buy insurance. The number one reason to buy insurance is what we call survivor needs, which means your survivor have needs that you're meeting now, but if you're gone, they can't be met. So let's say we've got a married couple and they've got three young kids. They just bought a house and the mom is a doctor. The dad is a lawyer, but the mom's making a lot more money and she's the one making the most of the payments on the mortgage. So what does this family have in terms of liabilities? Well, they've got to fund all their kids' education, which isn't done yet. They've got to pay off the

house, which isn't done yet. And maybe this couple has decided that if one of them is gone, the other one would need to quit work to be with the kids, maybe. So let's take that scenario. So in this case, the woman is the breadwinner, the bigger breadwinner. We have to find a way. If she's gone, how are we going to pay for all these things? Like, how are we going to pay off the house, pay for the kids? We add all those up. Okay, each kid would need $50,000 put away today to pay for college.

We need $400,000 to pay off the house, and this much for care in the home or for me to quit work. And let's say we come up with $2 million. Well, how long do we need that $2 million? Well, maybe for only 15 years, because in 15 years, the house is paid off. And in 15 years, the kids are out of college. So we don't have all those needs anymore. So what should this family do? They should on the mom buy a $2 million term insurance policy that expires in 15 years, that will be very inexpensive, it might be, you know, $1,000 or something like that a year. And hopefully you live the 15 years and no one gets anything.

But if you die in those 15 years, we've paid for education. We've paid off the house. We've made sure that the surviving spouse has the flexibility to stay home or provide for the care. Permanent insurance almost never makes sense because most needs are not permanent. And because they're sold normally as investment vehicles, they're incredibly expensive ways to invest. You're far better off buying term insurance for your survivor needs, buying investments directly on your own, then combining them two into a product. The one exception, it applies to like one in a thousand, one percent of the population

is if you have a very, very big estate, a very big net worth, over 25 million, you start to look at some unique types of permanent insurance to make sure that the family can pay the taxes so you don't have to sell the business or something like that. But for almost everybody, term insurance, it's the lowest cost way to do it and the best way to do it. The issue is life insurance agents make the absolute least on term insurance policies, so they're not really interested in selling that they make on average 10 times more selling a permanent policy, which is why you'll find a lot of persuasive people trying to convince you that permanent insurance is the way to go.

And persuasive social media people as well. I mean, this is a big TikTok trend that can be really confusing for people because they say choosing permanent insurance or whole life insurance is the money move that's often attributed to the Rockefellers. So people think to themselves, well, I want to be the Rockefellers, Peter. So I want to create my own bank. So why do you think whole life insurance is not important for those types of people? Well, I mean, like to buy a million dollars of insurance with whole life will cost you about 10 times what it costs with the term insurance policy, it will grow at a return worse than a bond. So you're getting a terrible investment at a terrible price, and you're paying too much for the insurance. But people that sell them, you just sell a couple policies,

and you make enough money to live off of a year, it's very common for whatever the first year's premium that the agent gets 100% of it as just part of their commission. And so that's why when you have those policies, you can't surrender them and get out of them for five years, seven years, because the insurance company wants to make all the money back, they paid the agent and then some. So they have to come up with all these reasons you should buy it. Like, oh, you can be your own bank and you can borrow against it. Well, you know what else you can borrow against? Everything else you own, right? You can borrow against your investment account. You can borrow against your house. You can borrow against a real estate property, your mutual funds, all of those things you can

borrow against. That's not unique to these policies. And so they grow tax-free well, but that tax-free growth doesn't offset the huge fees inside the policy. Instead, buy things like stock that also grow tax-free. You only pay a small tax when you sell them. All right. And I think some of the other non-fun, sexy things to think about when we're planning for retirement and end of life are the documents that everybody should have in place. These documents aren't one and done. Can you explain some of the circumstances under which someone would want to review their documents or when do you think people should?

Well, I think there's a few documents that everybody over the age of 18 should have. So if you're listening to the show today, these are some basic things everyone should have. One is a financial power of attorney. And a financial power of attorney basically says, hey, if I can't make a financial decision for myself, here's who I want to make it for me. It's that simple. Now, a lot of people go, well, if I can't make a financial decision for myself, here's who I want to make it for me. It's that simple. Now, a lot of people go, well, that's obvious. It's my spouse, or it's my mom, or my dad, or my kid. It's not obvious. This is America, and America is not going

to let somebody else come in and mess with your checking account, or your investment account, or sell your house without your permission. And so what would happen if you don't have financial power of attorney? People would have to go to probate court, take conservatorship over you, convince the court you're incapacitated, convince the court that you would have chosen them to make decisions. This is a process that can cost $50,000, $100,000, take half a year to a year and a half or more. And that's if everything goes smoothly. You solve this with a very simple document called a financial power of attorney. You name somebody, say, hey, if I can't make decisions for myself, here's who will make them. They'll be able to pick up your mail,

sign your checks, things like that. Very basic stuff. Everybody over 18 should also have a healthcare power of attorney, which I'm sure your listeners have guessed the same thing, but for healthcare. You don't have a healthcare power of attorney. It is not legally your parents, your spouse, your sibling, your kid does not legally get to make decisions for you. The court says, hey, in America, if you want somebody to make decisions for you, you would have written it down. Otherwise, they have to go to probate court, get guardianship over you to be able to make those decisions. So everyone should have a healthcare power of attorney that says, hey, I am naming this person to make healthcare decisions for me if I can't

make them for myself. And you might even give them some guidance on if you want to be on a ventilator or not a ventilator and all those things. And then lastly, every adult should have a will or a trust. A will just says, hey, if something happens to me, here's who's the executor that's going to settle my estate. Here are the beneficiaries that are going to inherit the money from me. If I've got kids, here's who's going to raise my kids and the ages I want my kids to get the money.

These are the charitable gifts I want. And here's the personal items I have and who I want to get them. A lot of people won't fight over the money. They'll fight over the jewelry and other stuff like that. And so the will takes that power away from the court. If you don't have a court, if you don't have a will, the court will decide who's going to raise the kids. The court will distribute the money. When somebody is 18, the court will appoint an administrator of subtly estate. That's a disaster. Take that power into your own hands, drop a will that says who's doing those things. And for those that have real estate or taxable investments over $100,000 or $200,000, instead of a will, they'll do a trust and they'll retitle their assets into the trust. You do the same thing

as a will. You name the guardians, beneficiaries, who's going to handle things. But now we're skipping the court system entirely and everything moves privately, quickly and without court costs to your loved ones. But those are the basics that everyone should have. It's such an important point because these conversations are obviously really uncomfortable, just like a prenup, right? But if you don't have a prenup, you still have a prenup. The state just decides. Somebody is going to decide these things. I think that's such a great point, Nicole. People go, oh, I don't want to get around. I don't want to make those decisions. Well, you have one right now. Everybody has a will right now. A lot of

states say your spouse gets half, your kids get half. If you're not married, then it's half to your siblings, half to your parents. If you don't have kids, I mean, the state has a plan for you. They don't want to reinvent the wheel every hour somebody dies. So they've made one up for you. All you're doing is taking that power away from them. Take the power back. All right, let's double click on trust because another thing that is big in the social media world around this Rockefeller's financial strategy is irrevocable trusts. In the path, you talk about revocable living trusts. Can you explain the difference between the two? Because this is this, I don't know if you've seen this trend of like, okay, have a bunch of

irrevocable trusts, make life insurance, whole life insurance, the beneficiary of those trusts, make your family a bank. I mean, it looks so tantalizing and exciting. So why do you say, what's the difference first between the two? And when would somebody use one or the other? So to do that, I'll just back up a little bit to what we were talking about before, which is will versus trust. So we talked about how the court will decide everything for you. With a will, everything still goes through the court system. So if you die and you have a will, we turn in the will to the court and we tell the court,

here's who the guardians are. Here's who the executor that will sell everything is. Here's who's going to oversee the money until people are old enough to get it. That's what the will does. But we're still going through the court process, which is expensive, takes a long time, and you pay for it. So to avoid that, you can instead do a revocable trust. Some people call them living trusts. And so let's say I set up the Nicole Living Trust. Instead of you having an account wherever it is, let's say Bank of America and an investment account wherever it is in a house, we take your house and we retitle it into

your trust and we take your bank account and put it in your trust and we take your investments and we put it in your trust. And let's say something happens to you 30 years from now, Nicole, and the probate court says, hey, we want Nicole's stuff to come to probate court. Your successor trustee, which is the new name we have for an executor in your trust is going to say hey nicole didn't own anything everything was owned by her trust and the court says well the trust didn't die go do it yourself so we skip the court system completely it's private it's quick we don't have the court costs and everything just goes on rolling that's why people call them living trusts they go on living and that's the benefit of them now it does

nothing for you tax wise all the living trust does the revocable living, and that's the benefit of them. Now, it does nothing for you tax-wise. All the living trust does, the revocable living trust does, is avoid the probate court system. An irrevocable trust, and by the way, with a revocable trust, there's no separate ID number, it's your social security number, there's no separate tax return, and you can revoke it, which is why it's called a revocable trust, meaning you can change the beneficiaries, you can move your money to another trust, you do whatever you want. There's only one other kind of trust, and that's an irrevocable trust. So if we put something in an irrevocable trust, like if I take $50,000 and I put an irrevocable trust and say, my kids are the beneficiaries of that, and my brother is the

trustee. Let's say next year, one of my kids makes me mad and I want to disinherit them. Well, I can't. It's in a trust that's irrevocable. I can't change the trust. Or I go broke and I want the $50,000 back. I can't have it. It's irrevocable gift. So with a revocable, I can change it whenever I want. With irrevocable, I cannot.

But an irrevocable trust is never subject to estate taxes. So when people die, if they have less than, and this is a big, big number, but if you have less than around $13 million, you don't pay any estate taxes anyway. So you wouldn't need an irrevocable trust. If you have more than 13, like if you have a life insurance counts, so if your net worth is $500,000 and you have a $20 million life insurance policy, well, you have more than 13. We would then put the assets, the insurance and irrevocable trust. The bad part is you can't get anything out of there. You can't change the beneficiaries. The good part is when you die, it's outside of your estate and no one will pay estate taxes.

So that irrevocable trust planning applies to a very, very small part of the population. So why are they all busy right now? I think it's a total scam. Hold on to your wallets. Money Rehab will be right back. I love hosting on Airbnb. It's a great way to bring in some extra cash, but I totally get it that it might sound overwhelming to start or even too complicated if, say, you want to put your summer home in Maine on Airbnb, but you live full time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like

that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you. I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly, I guess that's the best way to put it. But I'm matching with a co-host, so I can still make that

extra cash while also making it easy on myself. Find a co-host at Airbnb.com slash host. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out

Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime feels like progress. Banking services and debit card provided by the Bank Corp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject

to monthly limits. Terms and conditions apply. Go to chime.com slash disclosures for details. conditions apply. Go to chime.com slash disclosures for details. And now for some more money rehab. So why are they all buzzy right now? I think it's a total scam. And basically, we try to package something that's very simple. We're paying for a life insurance policy that will pay out no matter when I die. It's extremely expensive, has very high investment and management fees. The insurance agent gets a huge commission. And if you go to somebody and say, hey, you have these needs for 15 years, you can buy a term policy for $1,000, or you can buy a whole life policy for your whole life for $30,000, you better have a good story to go with that ridiculous sale. I don't own a whole life policy. None of your listeners should own a

whole life policy. I don't know anybody that should own a whole life policy. It's a terrible, terrible investment, a bad product. And that's why you see stories and narratives having to be built around it. I really doubt the Rockefellers own a whole bunch of whole life policies unless they own an insurance company themselves. Okay, Peter, not mincing words about this one at all. So you think that this idea is a scam, flat out? I think, I mean, it's not a scam in the sense that no one's stealing your money, but it's a step away from that, where they're selling you something that they know is not in your best interests, so that they themselves can make more money. interests so that they themselves can make more money. And what would you say if you potentially were to get irrevocable trust, but then you listened, you said, you were like, oh my God,

I want to change it. Can you do that? Well, the problem isn't really so much the irrevocable trust. It's the whole life policy you bought is such a bad product that the insurance company is going to trap you in it for five, 10 years after you buy it. So when you buy it, the person who sold it to you is going to get an enormous commission and the insurance company is going to say, hey, you can't get out of this policy without an enormous penalty for five or 10 years. And so you're going to be stuck at that policy for a period of time, at which point it makes sense to get out of it. Then you should get out of it and do something different, but it will still have to be within the confines of their evocable trust that the money is now trapped in. We have to get you to go viral on this one. And you mentioned briefly that you could borrow from

other assets, or I'm assuming you mean like a home equity line of credit, margin account. Can you go through some of the other ways that you can borrow against your assets? Because the idea is like, oh, I don't want to sell them because I don't want to sell my stocks. We don't know if they're at the high or the low, and we don't want to pay taxes and all of that. I mean, this is a tactic that wealthy people are well aware of. It's something a lot of our clients do. So let's say you've got somebody that got a million dollars in an investment account sitting at Fidelity or Charles Schwab or a custodian like that, but they suddenly see another property they want to buy. They need a $200,000 down payment, or they want to buy this

investment. Whatever it is they want to do, they need $200,000. They can fill out a piece of paper and turn their account into what's called a margin account. And then Schwab or Fidelity will lend them the $200,000. And that's it. They don't have to go through a bank process. They don't have to fill up reams of paperwork. They don't need to have a whole life policy in an irrevocable trust, which is the worst way you could possibly do this. And they're borrowing against their own account. And so their investments can continue to grow without being interrupted in their growth. They don't have to sell anything and pay taxes to get the money they need. They just borrow against the account and pay it back when they want.

Same thing with a home equity loan. You can go to the bank that loans you the money or another bank and say, hey, I want to borrow against my home. They'll give you a checkbook that you can use to borrow up against a certain amount against your home. There's any asset you have that is in the taxable world, you can borrow against it. You don't have to buy a whole life policy to be able to borrow against something that you own.

You are paying interest though, when you do that. Yeah, you're paying interest all the time. And if you don't pay it, they'll take your stuff. That's correct. That's right. In all these cases, you have to actually pay back your loan. That's 100% of the time you do need to do that. And the interest rate,

if you're getting a margin account or if you're getting a HELOC or something like that, are they lower than what you would get if you just went to go take out a regular loan? So when you borrow against your home, it's almost always lower than borrowing against other places because the bank lending you the money knows that you are definitely going to make the payments so you don't get thrown out of your home, right? So when you borrow against a home, the rate will be lower than even borrowing against a second home, which you're more likely to walk away from. Investment accounts are usually really low rates too,

because when you borrow from a third party like Schwab or Fidelity or a place like Vanguard or whatever, and if you don't pay them back, well, they have your account, right? They will just sell positions in your account to cover the loan. So those are very low rates generally relative to other ways to borrow. Definitely much, much lower than borrowing from third parties or credit cards or things like

that. All right, let's round out all the uncomfortable conversations to have and talk about a will a little bit more. When should you talk to your kids about a will? So your kids should have their own estate plan when they become legal adults in your state. So most states, that's over 18, definitely get them a health care power of attorney, financial power of attorney. And then you don't need to bother with the will or trust until they have investments. And once they start to build investments or buy a house, they should at least go get a will. The health care power of attorney is interesting. I really opened my eyes to this early in my career. A daughter of one of my clients got in a car accident.

Visiting her from college was life flighted. Thankfully, she's okay. But there was a two-day period where there was a fight among who was going to make healthcare decisions and no one was making them because that daughter didn't have a healthcare power of attorney. And so we've always made sure since then that the kids of our clients have those healthcare powers of attorney. Otherwise, for the will and trust, you've got to have some investments or buy a home before you head in that direction. Oh, yes. I'm sorry. I meant, when should you talk to your kids about your will? Like if they're in your will or not? Very, very divided point of view of a lot of people among this. So there's some people who share with their kids, oh, here's everything we have and what you're getting. I'm not a believer

in that at all. And I'm much more about teaching your kids about money, teaching them to be good stewards of their wealth, teaching them about investments, really making sure that they understand all these things so they're prepared for whatever's coming their way. And obviously you want, especially if you're older and the kids are worried about covering your care, letting them know, hey, reassuring you, we've got enough money to cover long-term care needs and things like that. I'm all for that. I'm not for here's the net worth statement and here's how much you're going to get and when you're going to get it. There's no reason to rob your kids of their accomplishments, right?

I mean, I know when I was getting my first job and I got an $8,000 raise, how enormously happy I was. And I'm sure if my dad had done a graph and said, hey, by the way, I've been a doctor for 40 years and I now have this much and you're going to get this many hundreds of thousands. It would have squeezed a little bit of the joy out of that. So let them have their own journey. I mean, there's nothing they're going to get from getting all the details until they're adult, maybe 30s, 40s. That's a different conversation possibly. So the Malouf children, they don't know what's happening. They don't know. No, no. All right. We talked

about some trends that happen on TikTok. We've touched on some biggies, but it got me inspired to play a little game with you, if you don't mind, that we're calling TikTok truth or trend. There's so much of this stuff out there. So I'll just mention a few more and you tell me whether they're truth or trend. Ready? Okay. If you're buying an investment property, buy it through an LLC. Truth. So if you buy an investment property, you buy it on your own. And let's say there's a problem in the house. Someone gets injured and they sue you. They can come after you and take everything you own. If instead you get that investment property, you buy it in an LLC, the LLC signs the lease with the tenant, the LLC collects the rent,

the LLC has its own bank account, the LLC pays the person to mow the lawn. If the person in that property sues you, the liability will be limited to the assets of that company, which are just the rental property. Okay. Then if you get an LLC, you should get it through Delaware or Wyoming. So getting an LLC through Delaware or Wyoming. So getting an LLC through Delaware or Wyoming is kind of an other step of asset protection that is overkill for 99% of people, not really necessary for something basic like an investment property and more for somebody who's establishing a really big enterprise that's very concerned about asset protection. If you buy a Range Rover or a G-Wagon, you can write it off. Sometimes in the tax code, there are rules that if you buy something that weighs over a certain amount, you can take a bigger deduction in a given year. I would definitely recommend you

talk to your CPA. Beforehand, I've seen people buy things that are just under the limit or people aren't aware that this is a law that is constantly changing. So sometimes is the answer. If you own a business, you should hire your kids when they're young so you can create a custodial Roth IRA for them. So this is true, but you have to follow the rules. So to open an IRA, you have to have earned income. So if I've got a one-year-old, it's going to be very challenging to hire that one-year-old because they can't possibly do anything to earn the income. And if the IRS shows up, it's going to be very tough for me to explain what this kid did to earn that money. Now, if you've got a kid that's eight or 12 or 15, that you could actually give them work, pay them to do that work, and then they can take that money and put it in the custodial. You could take that money as their

guardian and put it in the custodial Roth IRA. It will grow tax-free. And because they're so young, by the time they're 60 or 65, they'll be multimillionaires just from this tactic. You could put them in a little catalog or a pamphlet or something. You can put them on your website. There are things you can even do with the one-year-old, but just make sure you're following their rules. Choose a 40-year mortgage if you can get one. I'm not a fan of this. So the logic of this is the longer the mortgage, the more the wealth you'll develop. And the logic is the interest rate is usually pretty low. That's not the case today as we talk and interest rates are around 8%. But if they were five, the logic would go, hey, I'm only paying 5%

interest. I'm going to take the money I would have paid into my house and I'm going to buy stocks with it over the long run. Stocks are in 10. The mortgage is just five. Of course, I'd rather put the money in stocks. But let's face it, we're all human beings. We are not going to save every dollar we're going to pay towards our mortgage. The mortgage is a little bit of forced savings.

So if you can do a 15 year or the longest, a 30 year, so that by the time you're retired or close to it, this house is paid off. A REIT is a good way to invest in real estate without needing to buy a property. A REIT basically means you take your investments and you go put it in a fund that buys a bunch of different properties. It is a great way to invest in real estate without having to buy a property. It will probably get about the same return over the long run. The difference is if you buy your own property, you get to depreciate yourself on your tax return. And also, of course, you have a little bit more control. And because you're involved in it, you may get a better rate of return. The advantage is it's very easy. You're not going

to get called when the toilet's clogged or if somebody breaks into the house or someone gets hurt on the property, you are going to be diversified across a lot of different types of real estate and probably geographically across the country. So they each have their pros and cons. If you're exceptionally good at buying properties your own, you can do better there. But for most people, publicly traded real estate is going to be the way to go. Leasing a car is better than buying. So this depends on how you look at it. So if you're looking at building wealth, buying the car, especially buying a used car and driving it

forever is the best path because now you're spending the least amount to get from point A to point B and you're saving the difference. For people that say, hey, I want to have the best safety ongoing and every five years or so, brakes get better the airbags get better the collision impact resistance is better the technology all around is better if you're that type that's going to say i need that and therefore i'm going to replace every five years then you could be better off leasing a good rule of thumb is to invest your age in bonds so if you're 20 years old your portfolio should should be 20% bonds and 80% equities or stocks. I think this is exceptionally terrible advice. And the reason is you could have

two 30-year-olds and one 30-year-old shouldn't have that much in bonds, right? Most 30-year-olds say, hey, look, I'm going to work for 20 more years. I need this money to pile up for 20 more years. We know over 20 years, the stock market's positive about 100% of the time. That person should be all stocks or very close to all stocks. You have two 70-year-olds, the idea that one of them should be 70% bonds or 30%, it really depends on their goals. If somebody's got a big pile of money, maybe they need a lower return to meet their needs. Maybe somebody has to earn a lot more to become independent. Really, your allocation should not have nothing to do with your age. It should be based on your goals. What do you need and when do you need it? And how long

do I have to get there? If I'm young and I've got a long way without needing the money, stocks, stocks, stocks. If I'm older and I've got more money than I need, we're going to have a lot of stocks. It's very much dependent on your needs. Now is a great, I can't say this with a straight face. Now is a great time to get in on GameStop. Oh God. This shows how up to date you are. This just started again, right? So here's the thing about GameStop. Look, I enjoy following this stuff, but this is basically a casino, right? If you're just having fun and it's no different than betting on an NFL game, you know, God bless you. Go put some money in GameStock.

But if you think you're doing it and you're going to beat the man and you're going to make a lot of money and this is the path to wealth, you're dead wrong. This is not the path to making a lot of money. The way you make money is you buy things that have a high expectation of bringing you income later,

not by buying things that you hope someone else is dumber than you to buy. That doesn't mean that there's not someone dumber to you to buy that. It's eventually though a game of hot potatoes. Someone gets stuck at the end. Just don't let that be you. Amen. If someone works at a bank, they're a fiduciary. Not the case. So it depends what the person is doing at the bank. And so it's going to be very dependent on that. The teller doesn't have a fiduciary duty to you. The person selling annuities in the corner as a broker does not have a fiduciary duty to you. I'd be very careful with that one. All right, Peter, it's always great to talk to you on the show. We are all about giving

bite-sized tips to our listeners for their financial life. And this is what you do so beautifully in your book, Money Simplified. Kudos on another great one. What can readers expect to see in Money Simplified? The idea of Money Simplified is to basically take all the concepts someone needs to be a successful investor and make it super digestible in 30 minutes or less with images and very clear language and guidance on what to do. So my hope is someone reads the book, gets through it quickly, finds it interesting and entertaining and walks away going, you know, I know a little bit more. I know how to be a better investor. Highly, highly recommend.

Bravo. Really, really, really well done. Thanks, Peter. Thanks for all you do. You're an incredible educator. I know you've got a big audience. So thanks for having me on, Nicole. It's a pleasure. Anytime. Come back.

Write more books. Come back. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehabatmoneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself,

which is the most important investment you can make.