Money Rehab with Nicole Lapin - Meet Money Assistant: "How do I overcome financial trauma and start investing?"

Episode Date: September 4, 2023

Today, Nicole is sharing the first episode of her new podcast Money Assistant, where she, along with her AI investing assistant Magnifi, give guests actionable steps to navigate their big money obstacles and achieve their financial goals. In the first episode, Nicole and Magnifi help Paola, who dreams of feeling comfortable investing. The only thing that's holding her back? Trauma stemming from her family's financial hardship in 2008. Nicole helps Paola warm up to the idea of investing, and Magnifi creates a portfolio that will put Paola on-track to meet her newfound investing goals. Never miss an episode, subscribe to Money Assistant wherever you listen to your favorite podcasts. Check it out: https://link.chtbl.com/dA3CJ-Co If you want help making an investing portfolio that suits your goals, check out Magnifi at moneyassistant.com

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And I'm Magnify, the AI assistant that powers the Magnify app. And we are your money assistants. On the show, we help people overcome financial setbacks and meet their money goals. So here's what we're going to do. First, you'll hear me talk to a guest about their relationship with money and their financial dreams. And then I'll provide a personalized game plan developed by the most cutting edge financial technology. If you want us to be your financial assistants, listen to the end of the episode to hear how. Until then, this is who we'll be assisting today. My name is Paola. I make $80,000 a year. I have $30,000 in student debt and I nearly have my credit card paid off. I am $869 away. I don't have any savings right now. And my money goal is to feel more confident with investing.

And where to start is really just understanding all around where to go from there. So Paola, we're going to put your money assistant to work, but we can't, of course, start there. Let's start with your story and how money has played a role in that story and do a little word association game. I'll say a word, and then you tell me the first word that pops into your head. Cool? Yeah, let's do it. Money. Avoidance. Oh. Investing. Fear. Savings. Goals. Retirement. Freedom. Debt. Stress. Okay, Paul, I'm sensing some financial trauma. Is that fair?

As someone with my own financial trauma, my radar is usually on point for that one. Yes, 100%. It's taken me a while to admit that I had financial trauma for a minute, but I've come to a point now where I want to have a better relationship with money. So yes, there is definitely some financial trauma there. Can you tell me a little bit more? What was your relationship with money like growing up? Money was not talked about in my household at all. It was never a table topic. I'm the youngest of five girls. It's interesting how you can live in the same household and have completely different

childhoods. My sisters had a very different experience with money growing up. My parents had a business for 25 years plus. And then in 2008, I was around middle school age. And I really, me and my fourth, the fourth oldest saw what it was like after 2008. And we really saw, we were old enough to understand kind of what was going on, but not enough. But I kind of absorbed it. When I say financial trauma, I do want to clarify, like, it took me a while to admit it because I thought that I was blaming my parents. And I know my parents, they really sacrificed so much to give us everything that we had in life. But you know, just growing up, it was never a topic that came up over and over. It was always very stressful.

Growing up, it was never a topic that came up over and over. It was always very stressful. And my parents told us, you know, stay, but don't trust anyone with your money. And so as I grew up, I always told myself, like, I'm not going to depend on a man. And, you know, I'm not going to, you know, no one's going to touch my money and I'm going to do whatever I want with it.

And I realized four years ago that I just had to switch it around. I had to really come to the conclusion that I needed to talk about it and I needed to create financial freedom for myself, however it is that looked. Yeah. The only antidote to shame is truth. Yeah. I remember when my family was going through the thick of it, they said, don't flush the toilet unless it's number two or like make sure you turn off the lights. Was there anything like that for you? A hundred percent, a hundred percent. Turning off the lights.

Oh my gosh, my mom would like scream bloody murder. Like turn off all the lights. What really stood out to me growing up, especially in 2008 was, you know, we lived in a really nice house. We, you know, my parents worked really, really hard. My dad's an immigrant. We lived in a really nice house.

My parents, you know, they would give me like a Friday allowance to go to the movies and whatnot. I was like in middle school at the time. And then I remember we just moved. And after that, I remember, you know, this is really vulnerable, but if it helps anybody else, and I'm sure you know, because I've heard your podcast and I've followed you for so long. But it was my mom just, you know, cutting credit cards and just working for jobs. And so there was just a lot of vivid pictures that

I just remember of saving money and, but it was still not talked about. So it's almost like you're living in a movie behind the scenes and nothing is being talked about. And I wasn't in a position to work yet. So as soon as I turned 16, I was like, I need to work. I'm going to get to work. And I did, I started working when I was 16 years old and I knew that, you know, I never wanted to burden my parents with providing me with financial resources. And I was kind of squeezing money at that point. I was like, I don't want to let it go. I'm holding on too tight because I just, I don't want to go through what my parents went through, even though that's, you know, not fair to say, because they sacrificed a lot for that. Were they invested in the stock market or did their business struggle just because everything

was struggling during that time? That's such a good question. I don't know if my parents ever invested in the market. I remember my sister was getting into investment. I was probably in high school at this time and get you my older sister and I are like seven years apart. But I remember that she invested with a friend of a friend that knew someone of something, right? And she invested all her savings. It was like a couple thousand and it was gone.

Like from one day to the next, it was gone. And I just remember my sister crying at my parents. And it was just me remembering this was proving me of how bad money was, right? I'm not trusting anyone with my money, especially not the government, especially not my friends. And like, it was just a toxic mentality that I just built from what I saw. Well, you had several levels of trauma, it sounds like. So you had the macro economic trauma that was happening, and we all felt it in 2008 when the banks were collapsing. And then you had your family trauma with how that affected their business. And then everything you saw with your mom cutting up credit cards and saying to turn off the lights. And then your

friend group as well. So you were doing like financial trauma whack-a-mole during those years. You were doing like financial trauma whack-a-mole during those years. Yeah. Yeah. And from that stemmed me working. And then if I can go back, right? We always say this, if I can go back, you know, but I would tell my younger self, it's great that you have a job at 16 years old. Do and save and learn as much as you can.

And I think for me, it was always seeing my parents when they did have money, they always wanted us to give, to give us experiences, like go somewhere. Even if it was a road trip or something small, it was like zero to a hundred. Right. So when I started making, you know, money for myself, I was like, yeah, I'm going to travel. And investment was never in my mind because I thought, well, you know, if I'm gone tomorrow, whatever, I'm just going to spend my money and travel and travel and travel. But it hit me in the face really quick when I hit 23, 24. I'm like, what am I, what do I want? You know, and what am I doing? And I'm avoiding

the conversation of investing. I'm avoiding the conversation of what do I want in my financial life? It's funny. A fun fact, if I may. Of course. I love fun facts. So on February 9th, which is my birthday, you put out an episode that said four hacks for credit card debt. And I get chills because I had taken your advice from transferring it into a balance transfer. And that's why I'm going to pay off my credit card in September. So I thank you. What a great birthday present to yourself. I know. It's a gift that we'll keep giving for so many years. That's awesome.

I'm so proud of you. Thank you. Yeah, stars aligned for sure. I was like, I needed this episode so hard. I appreciate you. I appreciate you. I appreciate you. And I, I think your future self is going to appreciate all of the positive things that you're doing today to set yourself up for tomorrow. And just because you didn't start until a certain age, doesn't mean that you don't have so much

more time in front of you. You're never as young as you are today. So I guess for me, when I was going through financial trauma, I tried to forgive my former self for all of those frivolous things that I did once I finally got money because I felt like I was deprived for so long. So I just went crazy because right to your point, YOLO. Yeah. And so I had to come to the realization, it sounds like for you as well, the hard way that financial habits are somewhere in between. I'm going to live forever and I'm going to die tomorrow. Right. Like usually we hang out in one of those two extremes. And so the sweet spot is in the middle. I definitely, I am seeing slowly the light of being able to have both because ideally it would be nice to be able to be like, Hey, I can take trips and not feel guilty and I can invest at the same time. And I just really need to find the comfort in that. And my partner, he's really into investing and he's really into the market and he's kind of pushed me. He knows that obviously it's a hard conversation to have in general about money, but he's done an amazing job to really be able to understand my past and really just give me a little love nudge, if you will.

I love that. Okay, partner. Thank you. It's important to just tell the mean girl inside your head to take several seats. He can help you. I can help you. But mostly, you're going to help yourself, which it sounds like you're ready to do. Yes. So this was what I think should happen with your plan to meet your financial goals. You make 80K a year, you have 30K in student loans, right? Nothing in savings. Is that a clear picture? I do have, I think, 8,000 in my previous 401k that I used because right now I work for a startup, so there's no offerings in 401ks, but that is what I had for my previous job. Cool. And is that still in the 401k or did you transfer that over?

I transferred it over, yeah, to a Roth IRA. Yeah. Cool. I recommend people put away 15% for their future self, retirement, paying off debt, and so on. So for your salary after taxes, that would be around $800 a month. Do you feel like that's something you can make work in your spending plan? Yes. It sounds like a lot. $800 is a lot of money, but it still leaves you more than $4,500 for rent, groceries, fun, travel, eating out, all the good stuff. Yeah, absolutely. No, I feel that it's fair if I remove all the eating out that I should not be doing as much. I feel like I can save

definitely $400 a month. Don't go cold turkey, by the way, because then you're just going to end up like a year from now being like, I was so good. Let me go to this eight course tasting meal, spend a few K because I was so good. Right. But yeah, I think that you have to invest in yourself while giving yourself small indulgences along the way. Valid, which is the goal, which is hopefully the goal. You and I are on the same page. Cool. So there's three to five percent counting against you for your debt. But if you invest, you could be making eight percent in the stock market. So it's really just simple math, eight minus three, and at the end, you'll make five, like you just subtract

what the interest rates are. So historically, the stock market goes up eight to 10% year over year. And I do want you to pay down your debt ASAP. But with the difference between the interest rates, that 8% growth if you invest, and then the 3% to 5%-ish cost on your debt, the growth on your investments will overall outpace your debt. You won't get the full percentage that you would be getting if you didn't have to subtract the percentage of debt, but you still will come out ahead. Do you see what I mean? Yeah. So you're saying essentially what's left over, essentially, I would just would not be getting the maximized return on my investments because I have to reduce the debt from my student

loans. That's right. So if you didn't have any debt, you'd be making 8% a year. If you're paying 3%, you'll be making net net, like at the end of the day, that's fancy Wall Street speak for just saying at the end of the day, you'll make 5% because you'll subtract 3% from the 8%. If you had debt that was 1%, then you would do 8 minus 1, which is overall 7% that you would make. This is the reason I love you and your podcast because you're just, you say it so straightforward, so direct, like in English, which I love. Thanks, sister. I wish I could do it in Spanish. I mean, hey, I can translate to my family, to my sister. My sister loves you too. Which sister loves me? Because you have a hundred. The fourth one. She and I are on the same boat because we're so close. So we kind of see money

the same way because we both remember. But the fourth one, her name's Melissa. Thanks, Melissa. So this is for Melissa too. So let's just, you know, for easy math, say you're taking $800 a month and you're investing that in your future self. So I would put, I don't know, let's say $500 a month toward paying down the debt, $200 a month into the market, and then $100 into a high-yield savings account for emergencies. So as soon as you pay off the debt, then you would put a big chunk of that into investing. And that's where you're going to start growing your money. If we take a look at how that will impact future Paola, she will be debt free in under six years, assuming

that higher interest rate of 5%, not 3%, it will be faster if it's really mostly at 3%. But I always like to be really conservative and beat expectations versus feel disappointed. And future Paola would be on track to have over a million dollars in retirement. How does that sound? Wait, what? Okay. Okay. Yeah.

So let's bring in the money assistant to break this down and come up with a game plan. Hi, I'm your AI investing assistant powered by Magnify. I'm here to help you reach your financial goals and help you understand the market so you can invest with confidence. I'm powered by AI, but you can talk to me like a human. It's nice to meet you. Hi. When beginning to put together a portfolio, the first decision to make is which assets to include. The two most popular asset classes are equities and bonds. The rule of thumb is to take your age and put that in bonds. How old are you?

30. I'll set the weight of equities at 70% and your bond ETFs at 30%. Does that work for you? Yes. Let's start with equities. Here are some S&P 500 exchange-traded funds or ETFs with low fees. First, do you know what an S&P 500 exchange-traded fund is? Not in depth. I know that it's part of the market.

An ETF or exchange-traded fund is a collection of assets that usually have something in common. You can have ETFs that are made up of shares of companies within a specific industry. A tech ETF, for example, would have shares of companies in the tech industry. Or you could have ETFs that mimic the movement of the stock market, which is what the S&P 500 ETFs do. ETFs are considered lower risk by investors because instead of investing in one company, you're diversifying your investments across several companies. So here are three options for you. SPY, which is currently around $440 a share. SPLG, which is currently around $52 a share. And VOO, which is currently around $403 a share.

Do you want to compare these funds? Yes, let's do it. I'll give you a comparison of the volatility and the returns for each of these funds over a one-year period. The least volatile stocks of these three funds has been SPLG, and the stock that has the best ROI or return on investment is SPLG. It is up 5.85% over the last year. Do you want to pick SPLG? Let's do it. Let's pick SPLG. Yeah. Let's add some bonds. Adding fixed income investments like these can help you further mitigate your portfolio's overall risk. Let's take a look at some popular low-cost U.S. bond ETFs. First, do you know what a bond ETF is? No.

Bond ETFs or exchange-traded funds are a type of exchange-traded fund that exclusively invests in bonds. These are similar to bond mutual funds because they hold a portfolio of bonds with different particular strategies from U.S. treasuries to high yields. And the holding period is between long-term and short-term. Here are three popular versions. There's AGG at around $95 a share, SCHZ at around $45 a share, and BND, which is around $71 a share. Do you want to compare these funds? Let's do it. I'll give you a comparison of the volatility and the returns for each of these funds over a one-year period. BND is the least volatile and has the best returns at negative 3.86. Do you want to select BND? No.

Okay, I will leave your portfolio allocation to 70% SPLG and 30% for a bond ETF that you can pick later. Does that work for you? Yes. Got it. Welcome to your new portfolio. The five-year historical annual return of a constructed portfolio is 7.15%. Thanks, Magnify. So, Paola, I love how you said no to investing in BND. I love that you're thinking critically and you're not saying yes to any recommendation that you get from anyone, whether it's AI, whether it's me. It's important to take all information and ultimately make your own decisions.

So to decode what just happened, Magnify made you a portfolio with a bond ETF. And again, the benefit of ETFs in general is that you're investing in lots of different financial vehicles in one spot rather than just balling out on, say, Tesla stock. It's the same principle that you're putting not all of your eggs in one basket, because if something happens with Tesla, you're out of luck. Yeah. So it's less risky. Bond ETFs invest in a lot of

different bonds. So bonds generally are less risky than stocks, especially U.S. Treasuries, which are bonds that are backed and issued by the U.S. government. So you notice that bond ETFs had a negative return over the last year. So that's why you said no thanks, I'm assuming. Yeah. Yeah. Right. So the share price has gone down.

Pros do expect it to go up. But with U.S. treasuries, the U.S. guarantees a certain return that they tell you up front. So for example, you can buy a six month treasury bond right now that's yielding at five point five three percent, and that's guaranteed by the federal government. So with your financial anxiety, having that bond allocation, being in treasury bonds instead of bond ETFs might be actually a better fit for you because you know what that exchange is going to be. Hey, government, I'm going to give you a certain amount of money. You're going to give me this predetermined amount that I'm going to get back my whole chunk of money plus that interest for the privilege of giving you my money for a certain period of time so you could do whatever you want with it. So it doesn't fluctuate in the same way

as an exchange traded fund would. And you can buy treasury bonds directly at treasurydirect.gov or you can go through your brokerage account for that six month treasury bond, for instance, at 5.53%, which is honestly really great. And I've been buying a lot of treasuries lately. I couldn't touch that many for six months. It kind of works like a CD at the bank. Got it. Got it. Is that percent always fixed or does it vary? It's a great question. So it's fixed for the one that you get, but it varies all the time. So right now they're really high because interest rates are really high. So that's great for savers. It's not as great if you're getting a mortgage and you're going to be paying a lot in interest.

But if you're putting your money into a savings account that's giving you interest, you're going to also be getting a lot of interest. So if you're on the good side of that equation, you're going to be benefiting right now. So five years ago, CDs were, I don't know, less than a percent. And now they're like 5%, depending on the duration. But back to bonds. If you buy a nine-month treasury bond, for example, that interest rate is fixed for the duration of the term you have purchased. You technically can cash out early, but you wouldn't want to because if you cash out before the bond fully matures, you're not going to get the full return. So you want to make sure that you're doing those kind of individual CD or bond investments with money that you do not want to touch or don't need

during that time that you're locking it up. But they're not going to be like, no, no, you can't get it. Give me my money. Right? Give me my money. Yeah. So now I think we have a pretty good financial game plan. You're going to take 800 bucks, it sounds like. Let's just start there. And then you're going to invest 200 bucks a month into the market. You'll put 70% into SPLG and 30% into treasury bonds. Yay!

This is so exciting. You're going to take 500 bucks to your student debt, a hundred dollars to high yield savings account. Do you have a high yield savings account? Yes. I followed the one that you recommended. It was called, I don't know if I'm pronouncing it right. I think it was Allie or Ally. Allie. Awesome. Yeah. And I kind of tested it. I mean, it's nothing huge huge like I literally just put a chunk just to like you know dip my toe in in there I love that yeah so I do have it again I haven't you know like touched it or gone back but I definitely was getting my toes wet I played around with it loved it told my sister as well yeah thank you I appreciate that and that's why I listened to

your podcast because it just allows me to really, really understand it just a lot better. And it just makes me a little bit more at ease as well to just know exactly what to do. I mean, of course, yeah, my partner tells me, you know, but his portfolio is a lot more groomed and I'm not there yet. For now. For now. I'll get there. I'll suppress it. No, I'm just kidding. Yeah. And sir, we'll be telling you about what to do with your portfolio next. So watch it.

Valid. So I would say you're changing your mindset really quickly already. So I would just, for that game association we did at the beginning, should we try it again? When I say money, what's the first word you think of? Okay. Now when I think money, I think invitation. Oh, that's such a good one.

I'm inviting it in. I'm accepting it. Yeah, you are. That's a great one. Okay. So you can repeat after me. I am good with money. I will invest in myself.

I will do the work. I will meet my financial goals. I will invest in myself, do the work, and meet my financial goals. Thank you so much. Money Assistant is a production of Money News Network. Money Assistant is a sponsored podcast by Magnify. Magnify is the AI designed to help you invest. Yes, you.

You too can have me and Magnify as your money assistants. Subscribe to Magnify at MoneyAssistant.com and not only will you get your own AI financial sidekick, but you'll also get access to a members-only live Zoom workshop with me where I'll answer your investing questions and together we'll get you on the road to financial freedom. Advisory services are offered through Magnify LLC and SEC Registered Investment Advisor. Mutual funds and exchange traded funds ETFs are sold by perspective. Please consider the investment objectives, risks, changes and expenses carefully before investing. The perspective which contains this and other

information about the investment company can be obtained by the fund company or your financial professional. Be sure to read the perspective very carefully before you decide whether to invest. This is a sponsored podcast paid for by Magnify LLC. I'm a client of Magnify LLC, so this should be considered an endorsement or testimonial. Magnify LLC is a client of Money News Network LLC, so I do have an incentive to promote this client. The testimonials provided may not represent the experience of other clients and are not a guarantee of future performance or success. Opinions expressed in this program do not necessarily reflect those of Magnify LLC. The topics discussed and opinions given are not intended to address the specific needs of any listener. Magnify LLC does not offer legal or tax advice. Listeners are encouraged to discuss their financial needs

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