ReduceDebtIncreaseWealth.com Welcome and Mr. Chuck here. This week I'm going to continue on the topic of investments. But before we do that, I want to remind you Do you know what your checking account balances Have you projected your your expenses coming up for from the next pay period, you know how much money you're always going to have, because we don't want you pan bank fees if you can avoid it at all cost. So you're gonna hear that every week I'm going to remind you and that's just a topic, something you have to do if you're serious about reducing your debt. Now this part of the building wealth or increase wealth, if his turret I'm trying to gear it towards somebody who's maybe paid off one or two credit card balances, you're freeing up a little bit of money. You got your emergency build up at least to 1500 dollars, maybe 2000, maybe 3000. And you're getting comfortable there, you're making progress and you're happy with what's going on. So I'm going to try to get information about how you increase wealth. Well, the best way is you got to put your money to work. And the best way to put your money to work is through investments. Advisors may say, Well invest in your money in a savings account or in buying stocks and bonds or in the stock market. That's the slow path to wealth. But it is a path because remember, last week, I talked about residual income. residual income is basically putting the money, your money to work, so you don't have to invest it somewhere. You put it somewhere. You buy an asset that's going to produce income and you let it Work for very little effort on your part, you just have to basically keep track of it. I mentioned that I, I use robo advisors. robo advisor is a computerized financial advisor or computerized stockbroker. You download an app into your smartphone, a lot of them have, you know, different fees, different things that they offer. But they'll give you advice you fill out your profile, your risk tolerance, you know this, that's all through a series of questions that you answer. And with that there might give you a suggestion of where to invest your money. And some of them have $100 minimum amount to get started. And the one I use has a $5 minimum amount so very little. So if you you know got some credit cards you started getting under control, you need to start paying yourself. And a good way to do that is get started in the stock market market. And Robo investors is an easy way to do it, and a less costly way to do it. So with that said, I have an article I'm going to read. And we'll get started with that now. Nine things to know about robo advisors found this in US News by Wayne Dugan contributor, automate your investing with robo advisors. robo advisors had become a popular option for American investors who prefer an actively managed account without the expensive fees associated with hiring a human manager. robo advisors are digital account management services that utilize trading of all globe rhythms rather than human input to actively buy and sell stocks and other assets for investors. Lacking an advanced understanding of how the market works, robo advisors make normally difficult investing decisions automatically based on changes in market conditions. The software also provides helpful account maintenance procedures, such as automatically reinvesting dividends and rebalancing portfolios. Here are nine things investors should know about robo advisors. robo advisors are cheap. robo advisor services are much lower costs than a human counterparts. For example, leading robo advisors service wealthfront offers that service free of charge for clients first $10,000 in assets, then charges only a quarter of 1% and fees above the threshold. By comparison, traditional advisory services from Buckingham assets management costs clients up to one and a quarter percent and fees annually. Robo advising services are certainly low on cost, but investors need to understand there may not be a human being monitoring and protecting their portfolio. In addition, while all Gerlach rhythms sound impressive, they're only as good as the experts to design them. robo advisors can help minimize tax loss. Taxes can take a major bite on investment returns, especially in actively managed portfolios. robo advisors service like wealthfront advertised tax loss harvesting a trading strategy that involves selling losing stocks and replacing them with similar stocks in a portfolio. This strategy allows investors to benefit from writing off assets losses, while remaining fully invested in the same long term strategy. active managers have been taken advantage of tax loss harvesting for decades, but the process is now fully automated and available to retail Investors for a fraction of the cost of a human manager would charge. robo advisors have limited flexibility. While leading robo advisors have customers answer questions to choose the best type of investing strategy for each individual, they can only go so far and customizing our algorithms. Clients can set and even edit perfect preferences, time horizons bowls and other variables. However, financial planning can be so overwhelming and complex that some clients may benefit more from regular discussion with a human adviser. Human advisor can also help clients deal with the emotional challenge of investing, such as writing out short term market volatility. robo advisors don't necessarily have the human touch when it comes to reassuring customers. Investors are skeptical a robo advisor despite the metric rise in popularity as recent survey by land the land Edu found a large number of investors don't fully understand how robo advisors work and are skeptical in their performance. Only about 25% of the 500 investors polled reported using a robo advisor service. Among those that were not robo advisors. customers. 60% 2% of respondents said they didn't even know what a robo advisor was. Two thirds of investors believe a robo advisor is more likely to lose their money than a human advisor. Roughly 70% felt a human advisor could deliver a better return than a robo advisor. results may vary. A study by Condor Capital Management found that investment returns from robo advisors can vary significantly in 2016 Condor tests the performance of nine top robo advisor service by open up accounts at each company. Name that term. The firm customized preference based on a high thought, hypothetical investor in a high tax bracket was moderate risk tolerance, who is anticipating retirement in 20 to 30 years, full year performance range from 10.7% gain for swab to a 5.5% gain for Vanguard. For comparison, the Standard and Poor's 506 deliver nary 12% return on the year. robo advisor haven't been truly tested. To all go rhythms driving robo advisors have strong track records delivering consistent annual returns. However, it's important to remember that leading robo advisors services are so new that their track record doesn't include the financial crisis of 2008 or eight or recessions. Sure, the service has performed well for the past eight years or so. But the stock market is up nearly 150% In that time, even a portfolio of stocks selected at random would likely have performed relatively well during that stretch. All right, first true tests of volatility of robo advisors may not come until the next us recession hits. robo advisors are easily accessible. Most human fund managers require clients to have at least $100,000 in assets. However, investors can typically qualify for a robo advisor during service with 5000 or less. betterment. One of the most popular Robo services had no count minimums. wealthfront even encouraged smaller investors by managing clients first $10,000 free of charge historically, investors with a modest savings and limited option and when it comes to money management. Today, robo advisors are limited to anyone with an internet connection. As more services pop up, investors can expect competition to drive promotional deals as well, making it even more appealing to open an account Go rhythms are based on Nobel Prize winning theories. Each robo advisors had unique trading algorithms that deliver varying results says that as the Condor study proved, however, most of all, all the rooms are derived from generally accepted investment theories focus on minimizing risk and maximizing return. When you gene pharma and Robert Shiller won the Nobel Peace Prize for economics in 2013. robo advisor betterment revealed that is all the rhythms relied on many other insights. betterment and wealthfront disclosed that they use the same principles of modern portfolio theory that earned economics as Harry Markowitz the Nobel Prize in 1990. robo advisors may be computer programs, but their strategies are based on sound human logic. robo advisors managed 224 billion and counting. Global robo advisors already accounted for more than 224 billion in total assets under management according to a 2017 report by stats data, that number expected to grow by 47.5% annually and expect 1 trillion by 220 21 stret. Cydia estimates that nearly 100 million people were use Robo advisory services within the next four years. With more than 47 billion in assets under management Vanguard is phi is by large the largest robo advisor in the world following swab Intelligent Portfolios 10.2 billion better net 7.3 billion wealthfront. 5 billion. According to bi intelligence, the US alone is more than 200 different robo advisors. boy that was rough. Sorry about that I mispronounce the words. It was a struggle that I got through it. Remember, I'm not a professional speaker. So, bear with me. First of all, they're trying to make it sound like these robo advisors are actually advisors. They're not, I view them as a service. Instead of opening up a traditional brokerage account, where you pay fees every time you buy or sell asset or a stock a bond or whatever it is, these robo advisors is really an app that you download to computer your your smartphone and you can open it up you can look at what to buy, what not to buy, they you fill out questionnaires they a they offer you they give you a list of what you should buy what you know based on your preferences and your your risk tolerance. So with that said, though, the the one I use is a minimum of $5 you can start with five dollars, it doesn't take a whole lot of money, they charge $1 a month that the biggest negative on it that I've read is a charge too much $1 a month ain't bad, you know, then it's a percentage once you go over $5,000 in total assets, and it doesn't add up to a whole lot, you may be paid 12 $13 a year if you have five or 6000. So it's not bad. They give you a lot of information. They gave you a lot of information and a lot of strategies to do and you don't have to do it. But if you follow their strategy, you'll do fairly well. Right now the market is down. So you should be buying as a simple strategy. buy low, sell high. But the most common mistake that American investors make is they're chasing after that big game. They're looking for something that's doing well. Well if you If you're finding something that's doing well, it's already too late. And then when the market starts to drop, they panic and sell everything. That's when you need to sit tight and hold on. And when the market bottoms out, if you got some money, buy in some more, because it's more important to have the number of shares. If you buy or low, you're getting more shares, you buy high, you're gonna get less shares. So the more shares you have, the better off you're gonna be. Because over time, the market will go up. The market is jittery, even on a good day, or even a good month or week or a year. And so you know, every day day by day, it's gonna be up and down, up and down, up and down. But over the long term, it's gonna be a gradual upward incline. As far as robo advisors go, if you just Google robo advisors, and go online, do your homework, then pick out what what you think is good for you. What fits your needs once and done desires. So with that said, some do with all the investing for Yeah, and you just put so much in every week or month or pay or whatever the whatever you set up. Other ones you select what you can buy your industries that might give you different industries and say do that. But most all of them are investing in ETFs electronically traded funds, which are just done electronically. So you can't own those funds unless you buy or sell and sell them through a computer that's electronically traded funds. They're usually got less fees and less costs associated with them. They're like a mutual fund or a mutual fund you would buy say in a, a industry group, and they buy a whole bunch of different industry companies within that industry. So you're you're spreading your risk out instead. In one company, you're spreading your risk risk out over many companies so that you have less volatility and less risk of losing, the gains might be slower, but the losses are Slower, slower also. If you have more than $25,000 to invest, and you don't want to do it yourself, I highly recommend getting a financial advisor, which is a fiduciary, and they usually will charge you on the value of your portfolio. And I personally stay away from stockbrokers because the only way they make money is sell and buy and stuff and they charge you a commission. So that that's my view and that's my opinion. rental real estate is my next topic I'd like to address. It definitely takes more money to get started and I because you're not gonna go out and buy a rental property, especially real estate. For $5, you're gonna have to have 50 75,000. You'll need enough money for a down payment and you'll need enough income to qualify for a mortgage to purchase the property. So residential real estate rental is what most people get into. You need to not only have the income to qualify for a mortgage, you also need to have the knowledge or ability to manage the property which manage he'll find a new tenant have a contract written up, take care of any maintenance problems that come up and then when the tenant moves out, be able to go in and repaint and if you do a lot of work yourself, you definitely will save a lot of money and you can have a positive cash flow. As far as your income taxes are definitely tax advantages to having residential rental property or any rental property as far as that goes. Let's see if I can explain it in the next couple minutes. You you buy the property the property has a life as far as income taxes it used to be 27 and a half years. So the the land is not depreciated, but the building is depreciated. And this is for tax calculations only that depreciation is going to be a significant number. So, you take your to figure out your profit or loss. You take your gross rents for the year. You subtract from that any maintenance cost, any legal costs. It any utilities that you pay, say trash electric water sewer, when maybe when it was empty or maybe you know, depending on the building and how it's set up. You have to pay some of utilities eat subtract your depreciation from that and you have lo and behold a real big negative number, which then carries forward to the front of your tax return and offsets your weight your other income. The best part about this is every year you got this negative number, which is normal for rental property. It helps offset your other income, your other income taxes so it reduces your income taxes overall. which frees up more cash for you. And the the building really doesn't go down in value and reality the building is going up in value. It appreciates. So if you hold the building for 27 years or 30 years or 50 years it's gonna be worth more when you sell it than when it was when you bought it. So you're gonna put a big capital gain in your pocket. capital gains are not taxed as ordinary income, it's a variable, a lower, much lower tax rate. And it's a separate calculation, maybe say it's 25%, you may be in a 35%, you know, tax rate. So you're gonna be paying less income tax on it when you sell the property. So it's a good and the best part, what I like is, you rent it out, somebody else is paying that mortgage for you. So it doesn't get any better than that. You make timely payments and you know, you collect your rent, you pay your mortgage, you pay the insurance, you know, those are all expenses. The interest you pay on the mortgage is an expense, the insurance on the property is an expense. On an honor you go. So he generally will have a negative number unless you've honed a property a long time you no longer can take depreciation on it. There are the downsides of having rental property and it could take consuming a lot of your time, it's gonna take quite a bit of front money. So while it may be good for some people is not necessarily good for everybody. Not everybody is cut out to be a landlord. I mean people's gonna call you with problems, you know, my waters not hot enough, my hot water heater went out well, like they didn't pay their gas bill. So the gas got turned off so they don't have hot water. He knows this little things like that they're gonna bug in, it's never going to be a good time of day, it's going to be in the middle of night when you're trying to sleep. So he had he has to have the personality for it and you have to have the patience for it. And you have to have the know how and some knowledge of how to maintain a building. So you can do some of that yourself and know what you can't do so that you don't try to do something that you're you know, it's in over your head. Same way with you'll see these TV shows flip my house or flip a house or whatever and they got seminars all over the country where you buy a house cheap maybe at an auction and you don't have a pay anything for it. You go in you got it out you renovate it and you sell it in 30 days. Well, that's fine if you have a whole bunch of contractors lined up if you have carpenters and dry wall and floor guys and painters and brick and masonary and whatever it takes and finish guys and you can buy, you know, your supplies wholesale, and you got the money you got the account set up. Yeah, that's good. You can make money doing that. There's no doubt is that definitely takes a lot of time and effort on your part. The bit flipping the houses if you got, you know, 50 100 people in your area doing the same thing. You're competing with them and you could be driving up values of the selling prices of homes where there's really not the demand to sell it. So slippers may be driving up the price of homes. And then when you you buy one, say you buy one, it's already renovated and you that well I get good price, it's 10,000 under market, then you try to sell it and you're sitting on it for a year and a half. Well, that's not good either. So just be aware, do your homework, do the investigation. And the main thing is don't get in over your head. But that those are ways you can build wealth, no doubt about it. Next week, I'm going to talk about e commerce and doing your own podcast or video or something like that. And then direct marketing Are you cut out for direct marketing, there's quite a few direct marketing companies out there. And we'll talk about what it is and, and those type of things. So that's coming up next week. new apps episodes are released weekly subscribed so you can follow Mr. Chuck's journey to reduce in debt and financial freedom as you do the same. If you liked this podcast, please share Transcribed by https://otter.ai