Episode 25: How to Not be an Investing Disaster Like Most Student Loan Borrowers

How familiar are you with investing? Are you prepared for retirement? You may be surprised to learn that, according to a recent Student Loan Planner investing survey, many in the SLP community are not financially ready for retirement. Learn why your investing plan is just as imperative as paying off your student loans if you want to retire at a reasonable age (or even make work optional).

(Plus, learn how to sign up for Student Loan Planner’s investing course, available until 11:59 p.m. Eastern Time tonight!)

In today’s episode, you’ll find out:

  • Why your investing plan is just as important as your student loan payoff plan
  • How putting all your money into paying your student loans can impede your retirement
  • How financial advisers have changed from the era of pensions to now
  • Why so many financial advisers don’t understand the nuances of student loans
  • What the Student Loan Planner survey said about attitudes toward investing
  • How many respondents from the SLP community are using investment products
  • The difference between maxing and matching with retirement accounts
  • Three main questions survey respondents had about retirement and investing
  • How survey respondents felt about stock market volatility
  • How investing and student loan payoff plans would look in a real-world example
  • Why millennials have struggled with finances more than previous generations
  • How technology has shaped millennial finances for the better
  • Why the “Six-Figure Debt to Six-Figure Net Worth” investing course is worth it

Full show notes at: http://studentloanplanner.com/25

Links mentioned:

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Episode 25 Transcript

Travis Hornsby [00:00:02]About 40% of people said that if the markets fell by 50%, they’d sell everything. And that would be awful because that’s what happened in 2008. So almost two in five of our readers basically said that they couldn’t handle stock market volatility. So that’s another thing that you should learn about investing long term is that when your money goes down, you actually want to be investing more, not less. And if you’re in a stable career, like most of you are, you can do that.

Travis [00:00:28] Welcome to another episode of The Student Loan planner Podcast. I’m Travis. And today we’re going to learn about how to not be an investing disaster. We’re right in the middle of the last day of our Student Loan Planner course “Six-Figure Debt to Six-Figure Net Worth.” StudentLoanPlanner.com forward slash investing, by the way, is the address to go to if you want to see if you can enroll before the course closes. It closes Tuesday, tonight at 11:59 p.m. Eastern Time. So if you want to learn about investing, definitely go there and enroll in the course before the course closes.

Why your investing plan is just as important as your student loan payoff plan

Travis [00:01:01] And in the process of sending out emails telling people about what the course is and who it’s for and who it’s not, trying to convince people to make this investment in themselves, we got a couple emails. One of them was a pretty angry email, and I love sharing angry emails with you because it’s a lot more interesting to talk about. The person is basically like, “How dare you? How dare you try to tell people that they should invest their money when they have so much debt. That is so predatory. I want you to take my information off of your database right now.”

Travis [00:01:30] And I thought, “Wow, this person really does not understand what we’re about, and what we’re trying to do here.” So that kind of mentality. And I think the person was maybe somebody who had less debt, maybe a person that was a little bit of an older generation perhaps. But the problem is so much of the advice out there basically says, “Pay off your debt. That’s the only way to do it.” Oh, you have $200,000 in loans? Pay off your debt, even if you have $40,000 of income. Oh, you have $400,000 in loans, dentists? Oh, the only way you can handle that is just to put it on a 30-year plan and just keep around for forever.

Travis [00:02:04] Physicians, you have $300,000 in debt? Well then, the only possible thing that you can do is just roll the dice on PSLF (Public Service Loan Forgiveness) and pray that it happens. Or alternatively, you know, if you’re of a different persuasion, you might say, well, you can’t trust the government. You just can’t rely on PSLF. It’s going to go away. You know, it’s going to go away. So don’t take that gamble. It’s too scary of a gamble.

Travis [00:02:23] You know, you hear all kinds of advice like this. And bad student loan advice is super, super common. And what happens is, is when people don’t understand, like, how the student loans should be set up and how those should work, then your investing plan, which is super related to your student loan strategy, gets totally messed up too. This is what I’m seeing. This is why we decided to launch the “Six-Figure Debt to Six-Figure Net Worth” course in the first place. I noticed, from doing well over 1,000 plans — our group’s done over, I think, 2,200 now — that people are getting really bad help saving for their future because the student loans create so much confusion. And people are really just, you know, not — they don’t know what to do.

Travis [00:03:06] And then you have people coming into the fray that are trying to basically be tourists in the student loan world and giving advice about something they don’t understand. And the advice that they’re giving is bad, and it hurts people and delays the date that they could make work optional by, in some cases, many, many years. I think that it’s so important to know how to invest because it can make such a huge difference in your life, and we’ll prove that a little bit later.

Why putting all your money into paying your student loans can impede your retirement

Travis [00:03:31] And to show you kind of how this this advice could really hurt someone, let’s pretend that you have a veterinarian with $300,000 in debt, and she makes an $80,000 income. Pretty typical scenario these days from somebody graduating from vet school. Let’s say she’s got an uncle who works at a big financial institution and really believes in being debt-free and those kind of things and says, “Hey, you know, you really should pay this off and get rid of it as soon as you can.”

Travis [00:03:59] So she listens, and she’s a pretty good saver. So she takes home about $5,000 a month, and to pay back her debt, she’s got to pay about $3,000 a month for 10 years to get rid of it. And during that period, she’s really living on about $2,000 a month. So she’s driving a paid-off car, scraping by with roommates, not going out to eat. And that’s an extremely sacrificial level of spending when you went to four years’ worth of graduate school and got a doctorate degree. Right.

Travis [00:04:28] So after this intense sacrifice, this veterinarian is in her late 30s and has no assets, even though she sacrificed like crazy to get there. This is a pretty good argument for why people should go for forgiveness because I can kind of paint this picture that’s pretty dire that says, “Hey, even if you do sacrifice like crazy, then you’re going to be in a situation that’s equivalent to somebody who, you know, made a whole bunch of financial mistakes, got divorced, had a personal crisis and is starting over in their 40s.” Which is not — you know, you can recover from that — but it’s just not something that you want to get yourself into if you can at all help it. Right.

Travis [00:05:06] Now, there’s other folks too that get bad advice that hurts them. Like PSLF, it’s a great program, but I really worry about it because a lot of physicians take the PSLF program as a license to just spend and not worry about their personal finances. What I mean by that is there’s a lot of physicians out there that say, “Oh, I don’t have to worry about my loans because they’re going to be forgiven. So I’m going to go out. I’m going to buy the Teslas. I’m going to live in the big doctor house. I’m going to go on the fancy vacations. And I don’t really need to worry that much because I’ve put 4% into my retirement at work, and I increased that recently. Now I’m doing 10%, so I’m doing so great. I’m maxing my retirement account every year. I should be fine.” Right. So there’s a lot of physicians out there like that, and the fact that they don’t have to worry as much about their loans as maybe some other professions that are not using PSLF en masse, that worries me.

Travis [00:06:00] Another example would be a BigLaw associate. So say somebody works for Cravath in New York at a big law firm or one of those kind of firms, and the person decides to refinance to a five-year term so they’re paying $5,000 a month on their loans. They’re paying them off rapidly, feeling good about that. But then their loans are gone, and they didn’t learn about investing at all. They don’t know about that in detail. So then they just basically start spending a little bit more of the money now that their loans are gone, and they put a little bit more into retirement. But most of it just goes in a bank account earning 1 or 2% interest. This is a really common issue.

Travis [00:06:34] So in any one of those scenarios, you have a professional, like you, that might have a lot of student loan debt, that despite their best efforts and being really earnest about trying to pay everything off or at least get a handle on their finances, they’re going to enter their 40th birthday with almost nothing set aside for their future. That’s a big problem.

How financial advisers have changed from the era of pensions to now

Travis [00:06:56] To show you how this issue is broader than than just you, right. It also extends to the people who are supposed to help you — financial advisers. That’s been the industry of people that has been around for a long, long time that is supposed to be able to give you sound advice and help you make good decisions about the future. And back in the era of pensions, you know, your financial advisers were really more like brokers because, you know, if you were investing money in addition to the fact that you had a pension, then you’re pretty well off. And so you’re just kind of putting money into the market, playing around with it and having fun, you know, hopefully making some money. But it was a different world.

Travis [00:07:32] And then, you know, in the 80s, when 401(k)s got big, suddenly there was a little bit more of a need to have a long-term investment horizon and make fewer mistakes and try to have a good long-term performance. And so you had the rise of financial advisers that gave advice without having to sell commissions and having to sell products. And those are called fee-only fiduciary financial planners. So fee-only fiduciary financial planners are the most likely people to know about student loans, but most of those folks have only taken maybe a one-day class and maybe do five student loan plans a year. And they might know enough to be dangerous. That’s also the problem is they know enough to be dangerous. They could really hurt your situation pretty badly.

Travis [00:08:14] I know a lot of the fiduciary planners that we work with, they refer us business because they don’t want to make any mistakes that’ll harm their clients. So that’s the kind of person that you want [to work] with, is somebody who’s humble and that you’d want to work with. Somebody who’s humble enough to realize what they don’t know and when they should be seeking out other professionals to bring in to make sure that the person is getting the best advice.

Travis [00:08:36] But the problem is most people don’t work with fiduciary fee-only planners for various reasons. One reason why: it might be that you couldn’t afford one. You just can’t physically make that investment mentally at that point. Others might say, “Well, you know, I have a family friend who asked me about investing.” Or something like that. And then a lot of those folks are not going to be acting in your best interest. They’re going to be acting in their best interest.

Why so many financial advisers don’t understand the nuances of student loans

Travis [00:09:04] Just to talk about this little more: why don’t more advisers understand the nuances of big loans? Let’s kind of talk about this. So if you’re a dentist or a physician listening to this podcast or, you know, another high-income professional, I’ve got good news. You are a hot date, and I say that because everybody wants to work with you. There’s lots of competition in the financial advice world these days because the industry used to be really, really high-fee, very like, CLEC relationship-based. And it’s kind of being shaken up and changed now by all of these different algorithms and online services. And the big companies like Schwab and Vanguard getting into advice. And fees are falling rapidly. And so there’s a big level of competition in this space. And everybody in the world wants to work with people making more than $250k.

Travis [00:09:56] I’m in this, like, some groups online, and all the advisers that I see talk about the nature of the business, basically, everybody has the same market, like, people that make more than $250k. Which is just hilarious to me because, oh my gosh, you know, I didn’t know that only 2% of America justified getting professional and financial advice. Which is kind of ridiculous, but that’s the world we live in because the financial advice industry is super, super regulated. That’s actually why we did the investing course rather than just us offering financial planning because we’d have to pay tens of thousands of dollars in compliance fees if we just wanted to offer very, very basic investment advice. One on one, that is.

Travis [00:10:34] The folks, if you’re listening, with the high incomes, you attract a little bit more sophisticated breed of financial planner, and they might know some things about student loans. And they will get you probably on a good path for achieving your long-term goals in terms of investing enough, investing in the right stuff. Unfortunately, a lot of people don’t hit that level of income until their mid-to-late 30s, and they’ve already given up 10 years or more in their lives that they could have been preparing for the future for.

Travis [00:11:03] What’s more typical that I see is — Student Loan Planner exists for all income levels, right. The only kind of common thread is our audience: about 70% of you have six-figure student loans, and the other 30% generally owe, you know, $20k to $100k or something like that. Maybe. There’s obviously a group of people out there that just have a loved one that is affected by student loans that is really interested in this stuff.

Travis [00:11:26] If you’re a typical $60k to $80k kind of income person, like a physical therapist, occupational therapist, veterinarian, chiropractor, maybe small-firm lawyer or something like that, then the kind of financial advisers that are going to want to work with you, the most common person is going to be somebody who makes a lot of money selling products on, you know, maybe something like whole life insurance or annuities. Or they make kickbacks in the mutual funds they sell you because it’s very difficult to get lower-income people to pay enough to justify having a fee-only kind of monthly charge that you’re getting billed. And when somebody is a product salesperson —

Travis [00:12:07] Like, pretend you’re a product salesperson for Toyota, right. You probably know a lot about your RAV4s and your Corollas and your Camrys, but you’re probably clueless about Fords and Chevys and things like that. So when you’re a product salesperson, you don’t know that much about stuff outside your lane. At least that’s most common, right.

Travis [00:12:27] So some of the worst most damaging advice that I’ve heard people receive has been from sales people that are masquerading as financial advisers, which is honestly how the vast majority of the middle-class gets their financial advice right now, is they work with the super high-fee sales person who does some good, helps you save more money and helps you get some account started. Like, they do positive things; they just do it at a price that’s really high. That’s not nearly the value that I believe that you deserve.

Travis [00:12:58] That’s an issue because that kind of shows why we needed to make this investing course because most of our audience is getting bad investing help because the investing help is not coordinated with their student loans. And when that doesn’t happen, that’s a big, big problem.

What the Student Loan Planner survey said about attitudes toward investing

Travis [00:13:12] Let’s talk about who you are. Who’s our audience? What are your attitudes towards investing, and what kind of accounts do you have? Remember a little bit ago, a couple weeks ago, we did a survey, and we found that most people had six figures of student loan debt. I mentioned that about 70% do. And the income range for you all is all over the place. You know, we’ve got a lot of people in the teacher-income range, like $40k to $60k. We’ve got folks in the $60k to $70k range, like, you know, like I said, your physical therapists or your chiropractors, your occupational therapist, fields like that.

Travis [00:13:48] We’ve got $80k to $120k range: your veterinarians, nurse practitioners, optometrists, physician assistants and others, pharmacists in that range. And then you’ve got your $120k to $180k range, like your dentists, veterinarians who are high-producing or board specialists in that field. And then of course, we’ve got physicians and practice-owner dentists. We’ve got folks in the $200k, $300k, $400k income range, $500k income range even. We had a client last week that was making $500,000 to $600,000 a year.

Travis [00:14:24] So we’ve got people in every single range, so don’t feel like if you’re listening to this podcast, like, you’re sitting on the outside. No, you’re definitely in the ring of who we’re talking about here, whether you make $50k or $500k. The thing that everybody has in common is having the big student loan debt: only 5% of our readers are business owners. That is way too low. I would really like to see that more at, like, 20%, one-fifth of people. I believe that especially for health care professionals, what you do is very low-risk from a business standpoint.

Travis [00:14:55] It is the best thing in the world if you’re a bank to make a loan to somebody who’s going to just set up shop with a decent business plan that has a professional degree with a very high chance of people needing to show up and using the services. If you were a podiatrist or a dentist or some sort of physician with a defined specialty and you’re in an area that’s not mega-saturated, like, you know, in New York or L.A. or something, then if you set up shop and do a decent job of telling people where you’re at and getting involved in the community, you’re going to get plenty of clients without having to do a ton of work.

Travis [00:15:35] And some people would say, “Travis, you’re an idiot. No, you have to do a lot of marketing.” Well, you know – I mean, yeah, to be super successful, sure. But just to be kind of average or below average and make a living, you know, you can do OK with a professional degree because you’ve got protection from competition. You’ve got restrictions on you being able to practice, which means that other people can’t just enter your field, right.

Travis [00:15:56] And the public is generally pretty well-trained that you pay money for certain services, like chiropractic or podiatry or whatever. Because only 5% are business owners, a lot of people are giving away the fruits of their labor to people who actually own the businesses. And not everybody should be a business owner. But I think that people should at least try to aim to be a partner where you’re sharing in the positive profits at the business.

How many respondents from the SLP community are using investment products

Travis [00:16:18] Of our readership, about 40% owned mutual funds. That’s what they said. I think that is probably more than people think. Probably, I would guess, 80% of our audience owns mutual funds. They just might not know it because basically retirement accounts are generally mutual funds. Mutual funds means it’s a pool of capital that invests in a bunch of different stocks or bonds, and, you know, you can put in a fixed amount of money whenever you want and own a higher proportional share of what that fund is invested in. That’s what a mutual fund is.

Travis [00:16:48] I saw in our survey that very few people own C.D.s — not the stuff that we listened to in the 90s and the 2000s. I’m talking about certificates of deposit. And to be honest, like, one of the first things that I did in my teenage years is I opened a certificate of deposit, and I felt really great about it. I went down to the credit union. I put in only $5,000 that I earned from working a bunch of odd jobs into, like, a 24-month C.D. or something like that.

Travis [00:17:19] It’s not that good to use C.D.s, in my opinion. Maybe if you’re older, you have a ton of money and you like the security of a C.D., the insurance features of a C.D., great. But I’m glad to see that only 5% of our audience has certificates of deposit. I would much rather see people just put that money in a money market fund where it’s very accessible, and you can pull it out whenever you want instead of having it tied up.

Travis [00:17:42] About 40% of folks had a 401(k) and a Roth IRA. That is the highest of any of the account types that we asked about people owning. But it’s also kind of low. If only 40% of people have some sort of retirement account like that, I’m concerned.

The difference between maxing and matching with retirement accounts

Travis [00:18:00] We had 18% of people that owned a brokerage account. That really stood out to me because I thought that was way too low as well. If only one-fifth of our audience has a brokerage account, then only one-fifth of our audience has any chance of being able to not work before their 60th birthday. I tell people all the time that your money that you’re putting into your retirement account is for when you’re after 60. If you want to be able to retire after 60, max out your retirement accounts. If you want to retire in your 70s, just get the match on your retirement accounts.

Travis [00:18:36] It’s a very big difference between max and match. Match is when you put in, like, 4%, and the employer puts in 4%. Max is when you ask H.R., what’s the maximum I’m legally allowed to contribute to this plan every year? And they tell you it’s $19,000. And you try to figure out how to fit in $19,000 into that plan every year. That’s a max. But that’s only good enough to get you to retirement in your early 60s. If you want to have the freedom to work before that, you have to have a brokerage account, yet a lot of our people don’t even have one.

Travis [00:19:05] And then I asked a question further. I said, “How much do you feel like you know a lot about different kinds of accounts?” This is a little ironic, but, you know, the brokerage account was only 12% of people knew a lot about that. A brokerage account is something that you open at an investment company, like Betterment or Vanguard or Wealthfront, and you put money into it. Like, for example, VTSAX, VTIAX, these are Total Stock Market, Total International Stock Market Index funds. You can put money in those kind of funds, in a brokerage account, and then you can have no limit on what you can contribute because it’s just a brokerage account. It’s just an account that you use to invest for stuff. It’s not specifically your retirement account.

Travis [00:19:49] So in addition to people who didn’t know anything about brokerage accounts, which is the vast majority of you. Hopefully maybe some of you out there know a lot about brokerage accounts, but most of us didn’t. The other account that people knew nothing about was 529s. 529s are what you can use to be able to contribute to your kid’s college and save for your kid’s college. And what’s kind of brutal about this is if only 12% of people know very much about 529s, that means that there’s a big risk that a lot of our audience listening is not going to be able to send their kid to college without having the kid take out a bunch of student loan debt, too. And the vicious cycle continues.

Travis [00:20:26] I got super lucky in life. I had — My personal hero, my grandfather, was somebody who always found investing really interesting. And I remember when I was growing up, I would go over and mow the lawn for granddad. And we would hang out, and he would have a copy of the Wall Street Journal sitting on the counter. And we would read it over, and we’d talk about things. And I would learn about dividends, and he would tell me about how if you bought an investment, you could reinvest the dividends and buy more and more of it. And I learned a lot.

Travis [00:20:57] And to be honest, I probably would be just like you if not for him. I probably would not have any idea what a brokerage account was unless I had had that level of guidance when I was really a young kid growing up. There’s nothing wrong with not knowing about brokerage accounts. What’s wrong is just not learning about them after listening to something like this.

Three main questions survey respondents had about retirement and investing

Travis [00:21:19] We also asked in our survey a couple of questions. We said, “Would you want to learn about the following?” And actually, people were equally interested in all three of these things. The questions of ‘how to make work optional,’ ‘how fast your investments could grow’ and ‘how much in hidden fees are you paying now.’ Just to quickly go over each one of those, making work optional means having so much in investments that you could basically withdraw about 3% to 5% a year of what you have invested and live on that for the rest of your life. That’s the point when work would be optional. So for example, if you have a million dollars of investments and you pull out $40,000 per year and you can live on that the rest of your life, then work would be optional for you.

Travis [00:22:03] The next part is to figure out what when that date actually happens. So if you put aside a lot of money with a high savings rate, you’ll hit that date much sooner than if you put it in the low savings rate. That’s kind of the gist of making work optional. In terms of how fast investments could grow, a lot of people fall for these guaranteed annuities and things like that that promise you, you know, a 4% return guaranteed, right, or something like that. There’s no such thing as a guaranteed return. If you’re doing a guaranteed return product, it’s probably because there’s some sort of catch, like you can’t pull your money out for a number of years. It’s guaranteed, but it’s through an insurance company. If the insurance company goes belly up, like, maybe you don’t get that guarantee.

Travis [00:22:45] Guarantees, besides maybe, like, made by the U.S. government, are generally worth kind of the institution backing it. Just to give you an example of, like, a guarantee: when we had this transmission replaced when I was in my teenage period, my parents bought an extended warranty, right, because they said, “Well, we want to make sure that we get our transmission that we got fixed at this kind of like fly-by-night car repair shop, we want to make sure that the work is insured.” And so they paid a few hundred bucks for this warranty because they couldn’t afford to have the transmission blow out a second time. And sure enough, when we got home from our big road trip, it blew out a second time. And we went to try to get it fixed, and it turns out that the warranty was no good because the company went belly up. And so we had paid for something to insure against a risk, and then the thing wasn’t worth anything. The warranty.

Travis [00:23:38] So for that reason to this day, I will not spend a dime on extended warranties or anything. And I just really don’t — Whenever somebody tells me something’s guaranteed, I laugh at them because it’s never a guarantee. There’s always a catch, right. So I prefer to try to take the risk that I can afford to take myself and just know that, you know, for example, like, we have a disability insurance policy. It’s guaranteed by this insurance company that if my wife becomes disabled that they’ll pay a certain amount of money until she’s 65. We do that simply because I think it’s a pretty high chance that they stand behind that guarantee if we needed it. I don’t think it’s certain, but I think it’s pretty high probability, right. And so since it’s a pretty high probability and it’s a big risk for a surgeon that you’d lose your ability to practice and we are not worth multimillions yet where we can just pay for living expenses no matter what —

Travis [00:24:32] I know so many people are shocked by that, right. But I really try to invest most of the profits of Student Loan Planner back into business and back into getting more good information for you to learn from. We’re doing fine, but we’re not making tens of millions of dollars around here, anyhow. Like, be skeptical of guarantees. And so for that, what I’m saying is, is that when you put money into investments, like the long-term expectation might be that you’ll earn maybe 7% would be pretty good in the stock market. And that was the kind of the average expectation that people had in our survey. So 7% for stocks. Maybe 3% for bonds.

Travis [00:25:08] So if you kind of put those two together, then if you pay any fees at all, then you’re going to get a pretty low return. It’s not going to amount to very much. So that’s — The problem is, is we have such high valuations in the market right now, based off what the Fed did with flooding the market with all this extra money, right. It’s not to say that, you know, I wouldn’t put my money in the markets. I’m just saying, like, you can’t expect as high returns as we’ve had the past 10 years since 2009. That just means you have save more money.

How hidden fees work

Travis [00:25:36] And then the last thing that people really wanted to know about in the investing course was how much in hidden fees that you’re paying. I had a case one time when I was working at a big investment company when I first came out of college. And this person was an annuity salesperson, and this person was trying to convince this retiree from GM that she should take her entire retirement and buy an annuity from him. And it was a $200k amount, and this person would earn about a $20,000 commission if he convinced her to buy this. I felt like my duty as — this was like a customer-service rotation that I was on – I felt like my duty to that person was to just simply ask them, like, if she knew the fees that she was paying on her retirement account where her money currently was and the fees that she’d pay on her account when she transferred it.

Travis [00:26:27] So I asked her that question with the adviser on the line. She said, “He told me I wasn’t paying any fees.” And I laughed. And the adviser got extremely nervous because I was standing in the way of his $20,000 payday. And I didn’t care because I thought this guy was a scumbag because he’s taken advantage of some old lady without disclosing fees. And she said, “He told me that the company was paying him, and I wasn’t paying him anything.” And so he just obviously, like, that sounds kind of dumb when you think about it. Right. Basically, he was taking advantage of her and using complicated math to hide all the fees that she was paying.

Travis [00:27:02] So I just think that, you know, you have to know that when you work with an adviser, if you don’t know exactly what you’re paying in fees, you are paying hidden fees by definition. If it’s not something that you can explain, then you’re probably being had. In our survey, we found that fewer than 10% of our audience had more than $100,000 invested. That is terrible. I want to make that number far, far greater, which is why I decided this course is really important.

Travis [00:27:30] The savings rate that you have is the most important thing that will determine your financial future. In fact, savings rate — having a high savings rate can actually cause you to be able to retire a decade or two decades sooner than you otherwise would. The typical way that we see people raise their savings rate is to limit their car and housing expenses.

Travis [00:27:51] We asked our readers, in terms of your savings rate, tell us what your savings rate is. One-fifth of you, or about 20%, are saving nada. Zero. Zilch. That is awful. If that’s you, I understand that you might be in a tough situation right now. But if you’re investing nothing for your future in retirement or a brokerage account, you’ve got to change that. The most popular savings rate was 1% to 10%. By my calculation, if you’re saving 1% to 10% and you’re going for, like, a loan forgiveness program or something like that, then you’re probably going to be working until your late 60s. And I think most of you listening to this would prefer not to be working until your late 60s unless you’ve enjoyed it.

Travis [00:28:33] On top of the savings rate information, we found that fewer than 10% of our readers had a greater than 20% savings rate. So fewer than one in 10 of you are super savers. Yet people thought that they needed one to three million dollars to retire, which is probably accurate because that means you would be able to pull about $40,000 to $120,000 of income from that portfolio.

Travis [00:28:56] So in other words, people have a pretty realistic expectation with the amount of money that they need to retire. But our readers are falling short. And maybe they realize they’re falling short. But if fewer than one in 10 people have a greater than 20% savings rate, then people are really, really not doing well with putting money away for the future. When you’re not putting away money for the future, you’re not saving enough and you make a lot of these investment mistakes, then you’re just not going to have enough money to be able to have financial abundance.

Travis [00:29:26] And then the last little point from the survey before we get into an example and put all this stuff together: about 40% of people said that if the markets fell by 50%, they’d sell everything. And that would be awful because that’s what happened in 2008. So almost two in five of our readers basically said that they couldn’t handle stock market volatility.

How investing and student loan payoff plans would look in a real-world example

Travis [00:29:46] So that’s another thing that you should learn about investing long-term is that when your money goes down, you actually want to be investing more, not less. And if you’re in a stable career, like most of you are, you can do that. I get accused of abstraction sometimes. I apologize. I need to make things a lot more actionable, right, and give you examples. So I decided to come up with an example of a couple named Kawhi and Sara. Kawhi is a pharmacist and definitely not an NBA basketball player. If anybody gets that reference, it’s a little bit of a joke. And Sara is a physical therapist. So Kawhi and Sara, right. Together, they have $400,000 of student loan debt. And they, we’ll say Kawhi makes $100,000, and Sara makes about $80,000. So debt-to-income ratio over two-to-one.

Travis [00:30:31] And we’ll say that they come out of school — They’re in their mid-to-late 20s when they come out of school, and they had a family friend that said they needed to save for the future. They thought, “Oh, this is a great idea. We’re just married. You know, we’re thinking we want to have kids in the next three, four or five years. So we definitely need to save and invest for the future.”.

Travis [00:30:50] And the family friend that works for one of the big financial firms says that, “Well, we’ve got this product. It’s going to have a guaranteed return for 5%, and you can borrow against it whenever you need money. It’s a great way to put away money for the future, but it also protects you if something happens to you so that you can basically have your family protected.”.

Travis [00:31:14] And they don’t exactly understand what this is saying, but that sounds like a good idea. So they put about $300 or $400 a month into this thing, and they realize later that it’s a whole life insurance product from something like a New York Life for Northwestern Mutual or something like that. And it’s just a super expensive product. It’s not getting them very good returns. They watch the stock market doing well, and they’re like, “Well, I think I should just cancel this.” So they cancel that, and they stop paying into the life insurance fund. Or at least they cancel the whole life part of it and then keep their term life part of it.

Travis [00:31:49] And then that takes them about five years to figure that out. So now they’re in their early 30s. And Kawhi and Sara, they got introduced to other financial advisers along the way. But these financial advisers either wanted $100,000 of assets that they can manage, or they wanted a monthly fee of about $400 a month. That’s about $5,000 a year. And since they have their student loan payments. And they have car payments and housing payments. And they go out to eat, and they tried Hello Fresh, which is pretty freaking expensive (we’re using that right now; it’s kind of interesting but fun). They just don’t feel like they can swing that $5,000 a year.

Travis [00:32:34] And so they kind of just muddle along. They keep doing what they’ve been doing. And then they find a radio show from somebody, and one of the friends at church tells him about it. And this radio show says that they need to go hard on their debt and pay everything they can on their debt. And every dollar leftover needs to go towards debt. And so they really kind of buy into this. And they figure out that with their budget, after, you know, taxes, mortgage, all these things — and they have, maybe have some kids and now they pay for childcare. They can swing about $3,000, $3,500 towards their loans.

Travis [00:33:06] So they do this for five years. They drop their loans from $400,000 to about $327,000, despite paying over $200,000 on their loans for those five years. So they still owe a mortgage-level debt on their brains, but they paid, like, a couple hundred thousand dollars on their allowance. They’re just really depressed that it hasn’t changed all that much. So they kind of start to doubt the advice they got on that radio show. So then they think, “Well, I think I’m just going to — I heard I can do some sort of income-driven option, so I’m going to do that.” So they do that.

Travis [00:33:38] And by the time they get onto the income-driven plan and they’re starting to get rid of their kids’ daycare expenses and all those kind of things, they’re 10 years out from graduating, maybe a little bit more. They’re in their late 30s, almost at their early 40s, and they realize, “Oh my gosh, we’re not putting enough in our retirement because we’re in our late 30s, and we have nothing. And we still have hundreds of thousands of dollars in student debt.” So they decide, “OK, well, we definitely need to put a little bit more in retirement.”. They put, like, 5% in retirement at work to just get their match. Maybe they started a little bit sooner than that, so maybe they go from 5% to 10% or something, but it’s not a big difference.

Travis [00:34:18] And in terms of what they have, what they do have, Sara has been moving around in a lot of different physical therapy jobs. So she’s going place to place. She has, like, three different small 401(k)s, all with like $10,000 to $20,000 in it. It’s just not a whole lot. Maybe she cashed out one of them because she felt like it wasn’t worth it. Roll it into another retirement account.

Investing in rental real estate

Travis [00:34:37] And so they are in their late 30s. They put a little bit more into their retirement, but they realized too that they need to do something more. And so they read a book, like “Rich Dad Poor Dad.” Or they see some sort of Facebook group. Or they go to one of these things that they hear, you know, commuting to work about the house flipping. Or they see it, like, HDTV, they watch a lot of that to kind of relax after work. And they decide, “OK, we’re going to get into a rental real estate. That’s going to be the way. That going to be our thing that’s going to transform everything.”.

Travis [00:35:08] And to be honest, I think that rental real estate is great. Like, you can do something like BiggerPockets.com. And you can check out their forums, and you can read resources that are put out by some friends of mine, like CoachCarson.com. That’s Chad Carson’s site. And you know, you can really invest in real estate as an asset class and really do well with it, I think, if you read a lot of material and take the time to learn it.

Travis [00:35:31] But a lot of people use it as a pipe dream. Like, how many of these real estate things do you see on TV that are like, “I’m a single mom, and I make $100,000 a year for my rental real estate.” Like, it’s just some sort of freaking Ponzi scheme, the way a lot of the marketing is. It’s just basically, can I find some sucker that’s really anxious about the future and convince them to pay a couple thousand dollars for my class? And then basically make them feel good about themselves and give them this handbook that they may or may not use? And if they do, they probably won’t do that well with it? You know. So I mean, I’m really cynical about the real estate world, to be honest.

Travis [00:36:06] But let’s say that they’d buy a real estate play. And they’re in a high-expense place, so they’re in, like, Maryland or they’re in California or something. And they can’t really find any properties that are 1% monthly rent of the purchase price, which is what a lot of people say you want to aim for. So they instead buy a place where the cost of the rental properties is about $400,000. The rent is about $2,500 a month. So the rent mostly covers their mortgage and their taxes, but it doesn’t quite cover their maintenance. So the rental is either just barely cash-flow positive or it’s a little cash-flow negative. So they do that.

Travis [00:36:45] And I calculated that if they continue on this path, then Kawhi and Sara would work for 40 years. Forty years. That’s when they would be able to have work be optional. That’s when they’d have enough money, or they could pull out money out of their investments and have that cover their living expenses. If they are in their mid-30s and it takes 40 years for them to figure out their finances and be able to retire, that means they’re in their mid-70s when they can afford to retire. That is really, really bad, and that’s what a lot of people are doing by default because they don’t have investment knowledge.

Why millennials have struggled with finances more than previous generations

Travis [00:37:20] Now what if Kawhi and Sara had been in our parents’ generation? How would their life be different? And this is like a little bit of a rant, but I think it’s deserved because all the folks that are talking about millennials living in their parents’ basement. You know what? Like, people who say that, you know, you’re freaking ridiculous. Like, go look at what we millennials have had to deal with in terms of our finances, and it is really intense compared to a lot of generations throughout time. Yeah, we have some opportunities. We’ll talk about those.

Travis [00:37:48] But, like, consider this. Let’s compare us to our, say, parents’ or grandparents’ generation. So let’s say Kawhi and Sara graduated 40 years ago. Maybe they would have. So you know, 40, 50 years ago, so they’d have $40k in student debt combined. That’s like a tenth, right. The student loan debt literally would have been one-tenth of what it would have been today. They would have had no competition really because there was a lot fewer pharmacists back in the day, so a pharmacist could make a lot more money. And CVS and Walgreens didn’t control the whole universe, so you probably were able to set up a mom and pop pharmacy location. And consumers probably paid higher prices, but the pharmacist probably made more money. Pharmacist might have even owned the building and had a little bit extra that they could have sold in business equity to the big places that gobble up all these smaller places. So Kawhi probably would’ve been making more money, maybe like 50% more adjusted for inflation.

Travis [00:38:41] Sara could have practiced physical therapy with just a master’s degree. Back in the day, she wouldn’t have needed all this ridiculous extra training to make the same amount of money so that schools can be richer and have bigger revenue to spend more money on, so they can have larger buildings and more prestigious research and all those kind of things that schools use the extra grad-school tuition on. So Sara would’ve been better off as well.

Travis [00:39:09] And also housing prices are a lot more expensive, adjusted for inflation, today than they were back in the day. So they could have bought a four-bedroom, two-bath house, even in a place like California back in the 60s, 70s, 80s, and they could have afforded it pretty easily compared to today where you almost have to sell your first-born to be able to buy a house that’s more than two bedrooms in California.

Travis [00:39:32] Another kind of interesting thing: if you were born in 1937 or before, your retirement age for Social Security, meaning the age that you can get your full benefits, is 65. But if you’re born after 1960, then your retirement age is 67. So in other words, you get to pay into the system longer for retirement benefits that start two years later. Let’s be real. Our retirement age could easily be like 69 or 70 because the program is not funded for the long term, and so you have to do something to change it to make it solvent. And people are probably just going to say, “We’ll just keep delaying the retirement age.” So I think that that might be what will happen.

Travis [00:40:12] And also, not only are Social Security benefits getting worse, they used to take less money away out of our paychecks. So back in the 60s — a lot of people don’t know this, and when I found this out, I was just like incensed. I was like, “Wow, it’s just ridiculous.” Like parents should never, ever say something about Millennials because back in the ’60s, when my dad started working for the first time, his total taxes for his Social Security, Medicare, everything that came out of his check, including the employer’s contribution, was about 6%, give or take. Today our self-employment tax is 15%. So if you’re self-employed, it’s 15% of your wages. If you work for somebody, you actually lose about 7.5% of your pay, and you never even see it because the employer has to pay that tax to the government. So your total amount of your money that you lose because of Social Security, Medicare is like 15% today. Back in the day, it was almost a third of that.

Travis [00:41:07] And guess what else? People had pensions, too. So you had cheaper houses. You had better social safety net programs that were cheaper. You had lower costs of student loan debt by an enormous amount. You had less competition with higher incomes because the industry was less consolidated, so people made more money. And in terms of things that were not better about the past, obviously, like, you know, if you are not white, then you could have been discriminated against, and you might not have been able to get that job in the first place. Right. You might not have been able to get access to credit to go to school in the first place. So there are some other issues there too that would not necessarily make the past better financially for especially for everyone. But the people who could access those opportunities back in the day certainly had it way better off and had a way easier time than we do.

How technology has shaped millennials’ finances for the better

Travis [00:42:02] Now, where can we win? Where can you dominate and really have your future be brighter than our parents’? We have better access to information. You can type in any question, probably in your bedroom if you have like a Google Home or like a Siri set in there or something, and you’ll get an answer. You know, you have a world almanac. I remember, it’s probably funny to think about the conversations we’ll have with our kids and grandkids one day because, like, I remember when I was in elementary school, I bought an almanac of the world because my parents didn’t have internet yet. And I thought it was the coolest thing ever because I could look up all these facts, and I felt so smart and so wonderful having this book that I could see all these facts in. And today, I can just go on Wikipedia and find that in a second. And it’s just kind of unbelievable if you really think about the kind of change the world has seen in the past — just since we’ve been alive, and we’re not even, most of us are not that old.

Travis [00:42:54] So technology has really transformed things. The price of information now is drastically lower. And if you know what you’re looking for, investment fees are lower, if you know which funds to invest in. And that’s what we cover in the investing course at StudentLoanPlanner.com forward slash investing. We show you what kind of funds that charge low fees do for your finances compared to funds that have really high fees.

Travis [00:43:18] For example, there’s this one case where this Wall Street Journal financial adviser, they got profiled. Like, he was featured in The Wall Street Journal, so like, you feel like this person’s at the top of their game. Right. This person’s portfolio had 2% hidden fees every year, and people were entrusting billions of dollars for them to manage. I think that’s because a whole bunch of people are just totally clueless about the way investing works because if you’re putting money into a place that has a 2% fee just to break even with the indexes, then you’re going to have a pretty freaking hard time getting a good return long term. It’s probably not going to happen as good as if you knew how to manage your own money.

Travis [00:43:56] So because you have access to things like 0.25% investment advice at a place like Betterment or Vanguard instead of 1% a year investment advice that’s, like, four times as much money, you can get better returns than our parents did because investment fees on mutual funds like VTSAX are, like, 0.04%. Our parents were probably investing in mutual funds that were, like, 1% fees per year, and those funds still exist. You can still end up with those funds if you don’t know what you’re doing, but you need to know the material.

Travis [00:44:29] I ran some numbers for Kawhi and Sara. If they increase their savings rate and put it into investments and got a good investment return, they could retire in 20 years instead of 40 years. In other words, as a pharmacist and physical therapist, they can walk away from work 20 years from now if they wanted to versus having to work and do so until their 70s because they have to. And that’s solely because they were putting a lot of money into investments, and they know what they were doing.

Why the “Six-Figure Debt to Six-Figure Net Worth” investing course is worth it

Travis [00:44:55] So this “Six-Figure Debt to Six-Figure Net Worth” course is designed for somebody that has — I say six figure, but it’s really, like, $50k in student loans to like a million in student loans, with probably the typical person $150k to $400k in student loan debt. It’s built for you specifically so you can make sure that your student loan plan fits with your investing plan. And your investing plan has to be rock solid so you can be a wild success story in spite of all these obstacles that are thrown in the way of the millennial generation because of just the world we live in right now.

Travis [00:45:27] Because if you know this information; if you know how to identify the best value financial planner or the lowest-cost, high-quality investing service or the right mutual funds to put your money into you for the tax bomb; or you know how to invest for a side account just in case PSLF doesn’t happen, even if it’s a low probability; or you know how to make the decision between ‘do I pay off my loans faster or do I invest more money?’; or you know how to set up a solo 401(k) and maximize it to save yourself $20,000 a year in taxes; or you know how to put money into a municipal money market fund to get a 3.5% pretax yield compared to putting your money in a savings account and getting 2%, there are probably 20 different ways that if you take this course and you finish it that it will pay for itself.

Travis [00:46:18] That’s why I really believe in this course. And again, it closes May 21 at 11:59 p.m. Eastern Time. So if you’re listening to this on Tuesday, then today’s your lucky day. You can go to StudentLoanPlanner.com forward slash investing and check it out and enroll in the course, and you can take it whenever you want. You don’t have to finish the course by the date it closes. It’s just the enrollment closes. And that’s, for one, reason to make you actually get off your butt and do something because this investing stuff is so important. Because 12% of people in our Student Loan Planner community know what a brokerage account is. That means that so many people are not prepared for the future.

Travis [00:46:59] Only 10% of people have more than $100,000 invested. That means people haven’t realized that they need to be investing a ton, even if they are going for loan forgiveness, and so this information is really priceless. That’s why there is a money-back guarantee when you buy it within seven days, and if you don’t like it, you can refund the course in full. Just send us an email to Help@StudentLoanPlanner.com, and tell us that and we’ll refund it.

Travis [00:47:23] So StudentLoanPlanner.com, forward slash investing. Buy the course; it’s only $199 bucks. You can spend $199 on a nice dinner out and a bottle of wine, and it would have no impact on your future. In fact, it might have a negative impact if you drink the whole bottle, and you wake up. And you throw up or something. But $199 for this Student Loan Planner Six-Figure Debt and Six-Figure Net Worth investing course.

Travis [00:47:49] If Kawhi and Sara took that course and they saw how they could increase your savings rate, where they should invest the money into, what funds and how they can think about the right mix of stocks and bonds and how they should be investing their tax bond account and where they should set up a brokerage account and how much they should put into it every month and how to identify, how to avoid hidden fees and investments. If they took the course and learned all this stuff, I’m confident that Kawhi and Sara could shave off at least 10 years but maybe 20 years off of their required working career.

Travis [00:48:23] And if you don’t get excited about learning about something that could save 10 years or more off of your working career, then I don’t know. I guess we would probably have to talk about sports or something if we’re out at the bar or hanging out. Because I think that’s super exciting. This information present in this course, I really hope you decide to make the investment.

Travis [00:48:42] Thanks so much for learning about how to not be an investing disaster by having a high, high savings rate, by putting a lot of money into a brokerage account, maxing your retirement accounts, avoiding hidden fees by expensive financial planners and not panicking when the market crashes.

Travis [00:48:59] Check out the investing course. Reach out to us — Podcast@StudentLoanPlanner.com, if you have any comments or questions. Thanks so much for listening.

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