The BIG Danger of Paying Down Your House!

Welcome to another episode of Ask the Money Guy and Look, I know we're kicking this horse pretty hard, but it's so important for people to understand that we love you by

paying

your

mortgage. I don't want you to hear me wrong, I do. I want you to be completely debt-free as you approach retirement, but you need to understand the power of compound interest. There are about 20 years you need to maximize all the opportunities plus all the crazy things that happen in the messy middle. Today we want to present a case. Studying that proved our point a little further and we're going to look at some common misnomers because we keep hearing from you, which we love, we love hearing

your

comments, we love hearing you lean into saying no, no, guys, you forgot. about this oh well what about this? oh well, what's up with this?

Well, we don't really forget those things. We're going to address them front and center today as we guide you through what we believe are the

danger

s of

paying

off your debt. We were early so of course we couldn't start this program without having a case study from Daniel and I thought that was interesting. We changed the name from Dave to Paul because a lot of people thought and that was really the last time we did it. We didn't do this, Dave, it was totally Freudian, so we changed the name to Paul and Melissa. Now we choose 33 years.

Here's why we did this. This is what I said, Daniel, go find me what the average age is for the first one. time home buyers are and he was 33 years old, so that's the age we did for both Paul and Melissa. I found it very interesting because you weren't 33 years old when you bought your first

house

, you were 25? 25 and I was 21. when I bought my first

house

maybe 24. So when I heard 33, that's what it seemed like to me, but it makes sense. You know, you hear me. Many houses cost a nickel here in Georgia, well not in Tennessee, but not in Nashville.

In Georgia, houses were a nickel, so it was a lot easier to buy a house when you're 24, whether they're cheap, I thought that was really interesting, but we said okay, so we want to stack things up here and really look at these two savers. Okay, so we're going to look at Paul and we're going to look at Melissa and we're going to assume that they both buy a house, they're going to buy the house for 300,000 uh, they're going to be the one responsible put 20 down, so they're both going to take a loan of 240,000. Okay, so we have equivalent purchases, equivalent consumption here, so if we look at Paul, he says, "You know what I want to be debt-free as soon as possible." I've listened to all kinds of shows and I follow all the financial stuff and I know that a 15 year mortgage is the best way to do it so I'm going to go out and get a 15 year mortgage but Melissa says You know, I listen to the show Money Guy and I've heard about this thing with this army of dollar bills, so I'm going to do a normal 30 year mortgage because Paul went for the 15 years that he actually gets. a better rate, he has a two and a half percent interest rate on his mortgage, where Melissa has to charge a small premium at 30 years, she will actually pay 3.25 interest, so if he pays off those two loans , Paul's minimum monthly payment is sixteen hundred dollars. a month, look correctly at the principal and interest, the minimum monthly payment of it is one thousand six hundred for fifteen years for fifteen years.

Well, if we look at Melissa, his minimum payment because he can stretch it out for 30 years will actually be $1,044. That's about 550 less than the break, but again we wanted to set this up to be an equivalent illustration, so here's what we assumed: Paul will pay his mortgage for the first 15 years and then starting in year 16, he'll invest the sixteen hundred . dollars, right, because that's the argument we have people saying, "You know what happens if I pay off my mortgage early? I'll have more money to invest sooner. Exactly. If you're someone who's making that argument in your head right now, pay attention to illustration and I also notice because everyone always says, do you guys include the interest?

Yeah, we're totally including the interest, as you'll notice, we even give Paul the benefit of that since he's taking? a shorter loan, we give a lower interest rate at two and a half percent than Melissa's three and a quarter, which creates a headwind for Melissa's addition initially because we realize that they both start with 240 000 melissa pays more interest than paul so we could have skewed this if we were just trying to make our point for the sake of it. We could have manipulated the data but we tried to make this as honest and true as possible so you guys can really see how this flows, so remember again that we're trying to set up equivalent examples, so we're assuming that in addition to Melissa's minimum mortgage payment is $1,044.

She's going to invest an additional $556 per month, so what that means is that both Paul and Melissa have sixteen hundred dollars coming out each month. It's exactly the same number, 1600. One of them simply has everything for the mortgage. the other one is going to mortgage and then invest and then once Melissa has paid off her mortgage in 30 years she'll start investing the full 1600 so if you're one of those people that says well I'll be Paul because I can. invest more sooner, that's true, he can invest fifteen hundred, sixteen hundred dollars before Melissa, but there's more to the story, well, yes, because Melissa is going to have a big advantage over him, she's going to start saving $556 per month from the first day.

If he's 33, we know that's a huge multiplier when you're that age, so show them the rest of this bo and then I want to talk about what happens if things don't go the way Paul and Melissa anticipate when they arrive. age 43, which is 10 years after they bought this house, so what we can see is if you're listening to this again, make sure you go to YouTube so you can see the picture here, they both start. With the same mortgage amount, they both start with a mortgage of two hundred and forty thousand dollars. Well, Paul will pay off his entire mortgage when he turns 48 and then at age 48 he will start building his investment assets.

Melissa will start from day one by building her investment assets and also satisfying her mortgage, but she is going to satisfy the mortgage at a slower pace than Paul, so we said the same thing you mentioned, Brian, if we look in 10 years. How are they or where are they at after a period of 10 years when they are both 43 years old? Paul still has an outstanding mortgage of just over 90,000 and has not accumulated any investment dollars. He hasn't started saving but he has already paid. She paid off a lot of debt, she has a lot of equity in her house, Melissa has doubled her mortgage amount, she has one hundred and eighty-four thousand dollars of outstanding mortgage, but because she started increasing her army of dollar bills, she has accumulated almost and two thousand dollars in investable assets, so why do we choose 43 um to show this?

Because this is a point that I see in our comments section on YouTube and I say, guys, you're missing the big point and there are two stories I have to tell. share this first, I think I told you guys from my Sunday school class that a widow came up to me and said please, please make sure you share in your program that paying off all your debts is not always the best thing because she , her husband passed away, she still had kids at home, everyone told her to pay off her mortgage so she will know that at least she will own the house and everything will be okay, well the problem is that she did that and then she did it. having money to cover many educational needs and many other things, she says it was some of the worst advice they gave her, but they all meant well when they said they would get out of her debt as soon as possible.

Well, I see this and think of myself. I immediately thought of my childhood and we even have an article to read this. You can see this is June 1988. My world changed in life. Okay, and what happened was my dad started working for this um mckesson right out of college and he did it. that for over 20 years and then at age 43 mckesson decided to get out of that division and was out of a job and I mean, life was completely different, we lost the company cars, we were living off my mom's teacher salary , now this is what it is.

I'm crazy now, I can't imagine being a dad, us kids thought these were the best summers ever because dad was home, he was home, he was home during that period while he was looking for another job, but he showed it to me and this is. One of the reasons I always want to be self-employed. This is one of the reasons why I realize that you have to be careful if you give 20 years to a company that doesn't really offer you a path forward that you could enter. It is a delicate situation, but it goes even further.

What if Paul and Melissa ten years into this mortgage had the home of their dreams? They love where they are, but suddenly they realize, Oh my God, I still have to pay the mortgage on this. house, even paul who is five years away from the house being paid off, he only owes 90,000, he still owes 90,000, it's not like the mortgage company is gone, man, you've done a great job building equity, so we are going to be in this with you and protect you they are going to be like hot diggity dog ​​this guy is about to lose the house look at all the capital we are going to withdraw that is what the bank is thinking I hate being this bad while that at least Melissa will have liquid investment assets that she can use to pay mortgages, she will use to pay her grocery bill, she will use to pay utilities, Melissa will have options because she has liquidity behind her name, although we might think it's great to pay this mortgage debt as soon as There may be a time and a place and that's why I always ask you if you're 45 or older, if you're not nice, make that army of dollar bills work for you, take advantage of compounding because remember 88 times it happens when you're 20. 23 times it happens when you're 30 and when you're 40 years old, that comes down to seven, so you can quickly see 20 30.

Those are the years where you get the maximum compound growth for your army of dollar bills don't take those years for granted, yeah, I think, and we see this littered with all of our comments, people saying, you know, no, no, it'll be safer, it'll be better if I pay off my house sooner. because then if I lose my job, remember that Paul has actually been saddled with a payment of sixteen hundred dollars a month if he loses his job just like you said, no matter how much equity he has accumulated, he has to make sure that next month he can go back to increase. with that sixteen hundred and if you don't get another job next month next month next month then the question we asked is if you were these two individuals and 10 years into your mortgage you found yourself with a terrible situation or an uncomfortable circumstance would you rather be Paul, who has $210,000 of equity in his home but is illiquid or would you rather be Melissa, who doesn't have that much equity in her home yet but has a hundred and two thousand dollars of liquid investments that she can help close the gap .

When we talk about home equity real estate, real estate is amazing, but it is considered illiquid. You need to think about all the different steps it takes to get money out of your house and many of you think, "Okay." just go find a line on home equity, don't remember, I have fallen into that trap that I shared with you when we went through the great recession. I had six figures of home equity in my house in Georgia and I didn't have cash because I was like why would I need cash? I have a checkbook. I have all this capital.

I have six figures of capital until the day you don't need it. Because the bank can very quickly send you a letter saying, "Hey, that access to capital that you thought you had, we're closing it, it no longer exists and I think we even heard somewhere in the chat room that someone had mentioned that they were starting to freeze home equipment equity lines and other such bad things that tend to happen together, so there is a chance that you will lose your job, but also the real estate market will struggle, so you won't be able to sell it and convert that money in liquidity, so it's good to have options, so we know that personal finance is 80 right behaviors, what we love about what we do for a living is that there is math and science, but there is also.

There is an art. We are not trying to suggest that there is only one right way to develop financial independence; however, there is not only one way to achieve financial abundance. Our charge as your team is to show you the optimal way to do it, the one. optimal solution, so if you're someone sitting there and you're like a man, I wish my money had an instruction manual. I wish I knew the steps I follow. should go on and maybe you've bumped into us right now on this live stream. You're in luck because we are literally hours from ourpre-launch of the financial order of operations course.

This is your last chance for the next 24 hours. last chance to get the discounted rate on the course instead of going up to the full price of $249, it's still currently priced at $199 and if you order before tomorrow before the pre-release closes you'll receive a glass of money with your purchase you can't buy these things only well we can buy them you can't buy them the only way you can buy them is if you win them in one of our programs or if you are part of our early pre-release team if you haven't gone out and checked the order trading financial free deliverable go to moneyguy.com resources this is available to you for free go out print it put it on your refrigerator put it on your bathroom mirror make sure you do what you should do with every dollar and if you want to give a step further, go to learn.moneyguy and check out the trading financial order course.

I hit them hard, I hit them pretty hard on the plug, so this is what I want to tell everyone about those glasses that were sold out and actually, it's kind of crazy, we've ordered more. I saw the approval coming. This morning, Ruby, I saw that you passed the tests, so they will be here within the week and then we will leave, so if you receive the order by the time you know for the course before the September 30th deadline, we will do it. Sure we have the tumblr that I love in the private Facebook group, yes, all the photos that everyone posts.

I love how people share. We even had a showcase meeting this morning where we're going to come up with content to address. some of those questions and other things that are happening in the Facebook group, yes, the beautiful thing is in this live. We are asking you to ask us questions, we want to fill you with the answers that we are about to go over some questions and we are going to inform you. The good thing is that it is in the private Facebook group. It's an extended version of that where we can go a little deeper, have a little more complicated questions.

A little bit more specific in the things that we say, so we're so excited to be able to do that, so if you haven't gone out and joined that private Facebook group, the only way to get access is to be a member of the foo course and then you get access and we're going to do some really fun stuff there um okay let's answer some questions you want to ask we're going to answer them right so here's the first one this question is from Kevin and this is one where there's a There's a bit of dissension between the two of us, so let's start with a bit of controversy.

This is what Kevin says, as we live and work longer. Is it really that crazy to be aggressive in retirement accounts until age 40? I'm reviewing it periodically, so I think this is what Kevin is asking: Our opinion is not my opinion and always has been, that when you're just starting out you should only focus on figuring out two things number one, how much can I? Save, that should be the most important thing. You focus on how many soldiers I can add to my army of dollar bills. The second thing you can find out is when I want to retire, if you can answer those two questions when you are the first.

Getting started in the financial world has made it very easy for you to build your dollar bill army using target retirement funds the same way your target retirement fund works: you choose the year you want to retire and simply go buy that fund . we are pro, we prefer the index version of those funds, well what happens is that right now, while you are far from retirement, it will be more aggressive, it will have a higher allocation to stocks and a lower allocation to fixed income or risk, so As you move forward in time and get closer and closer to retirement, there is a path of planning that naturally becomes more conservative for you.

We think that these funds are incredible solutions until your assets reach that critical mass of around 400,500,000 and then you can benefit from a more sophisticated and well thought out allocation, well, there has been some doubt that young people say: yeah, okay , you could make that target retirement fund and you'll have it, yes, it'll be aggressive, but it'll still have some bonuses and it'll still be going. to have some risk in assets, should I really do that if I'm in my 20s or 30s or should I just use all the indices all the time? Should I buy the s p or buy the international index or fill in the blank?

Okay, and this is Kevin's question. If I do something aggressive until I'm 40, he chose 40 because I guess that's arbitrarily the age. Is it okay if I do that? If I make sure I keep an eye on it, you and me. I've had debates about this bo it's because there's a part of me that feels like if I'm 20 years old, you could probably get away with just doing a total market index, you'd probably be fine, but you're already there. You come back to me pretty strongly and I'm willing to admit a little that it's probably because there are so many areas where you can mess up by just going to the bottom of the target market, I mean the total bottom of the market versus going ahead and doing the total .

I mean the total market, if you do the total market index versus the index, you know the entire target retirement fund. I think I'm with you. You have persuaded me and that is probably why I am stuttering. places because I think target retirement funds, especially the index varieties, give you all the benefits of the index, but they don't let you screw it up there and here I want to go ahead and tell you as soon as possible. I know I'm over 40 so I'm officially old you're still aggressive yeah I mean I think if you look actually if you saw the recession that happened with covid earlier in March there's actually a lot of articles saying that the target retirement funds were too aggressive because they didn't hold up as much as people expected and that's why I think there comes a point where I think when you're in your 20s these things are naturally aggressive.

As long as you're in your 20s and 30s, yes, you could still be a target retirement index fund, but then you have to know that you'll reach a level of sophistication where you'll reap losses that you'll want to be able to analyze. location of assets you know what investments go into retirement accounts because they are taxed differently than your long-term capital gains in your taxable account and then it is tax-free, there are ways you can legally exploit that advantage You want to get creative with your charitable giving and do it later, as you get more sophisticated and naturally more complicated, so that all those things can be answered, but I think I hesitated on that.

I thought about giving an exemption. I even think I said it in a program for 20-year-olds to take the total market index, but I think again that the range of the retirement fund target index is superior, I think in most circumstances, when you do a circle and you end up agreeing with me again. so we've all ended up where we want to be right, I think that's how it works. Did you hear everything I had to stimulate? It was really, I mean, my brain was like, no, don't go there, don't go there. I don't want to agree with this guy, okay, I'm going to ask, I'm going to answer another question now, this is from Andrew Andrew, I'm not sure if you're trying to trap us here because this feels like a troll question, but I'm going to bite, so here we go, this is what Andrew said.

If you had already paid off your house at age 43, would you recommend taking out a new mortgage to invest the rest in the market? I think he's trying to get it. we, yeah, I think he's trying to get us, uh, Andrew, here's the answer, absolutely no, no, we wouldn't recommend doing that because the most valuable resource you have when you're in your 20s and 30s is time, unfortunately when you're in 43 years. You've already paid off your house, you can't go back and get that 88x multiplier. You can't go back and get that 23x multiplier and no you don't want to take on any more risk than is already there so if you're someone who's 43 and you've already paid off your house that's great remember that optimization sciences of art just because you potentially haven't optimized something in the past doesn't mean you should jump into your time machine and try to go back and re-optimize it a lot of times you can't do that's like people who, you know, I chose a college major but I've Been working in this career for 15 years.

I'm going to go back to college and maybe redo it. It doesn't always work that way, no, we would never recommend cashing out your mortgage and investing those dollars well. I also want to say that real estate transactions are very expensive, I mean Andrew, even if he does this, think even if he goes. refinance I mean there are plenty of reasons to consider refinancing with interest rates as low as they are now if you still have outstanding debt, but there will still be several thousand dollars in closing costs, so besides the fact that you can't recover the opportunity costs of losing your youth in the years when you should have been building your army of dollar bills.

You also don't want to go and mess up the status, the stamps, the registration fees, the attorney fees, the title. sure, all the things that go into closing on real estate that just make it completely expensive if it doesn't work out, so I think Andrew is trying to trap us with that, but I'll tell you, I don't like it. I mean, if you made the mistake, you're just there, you've just made it. I wouldn't even call it a mistake. I would just say that if you took an optimal optimization path, that's fine at 43. Now this is what I'll say.

If you're 43 and have a house paid for but your retirement portfolio seems anemic and you haven't built those assets, boy, you've got to get busy because you're going to have to work a lot harder to build that army of dollars. bills than your 20 year old self would have, it's not impossible, you still have plenty of time, your dollars can still turn seven times or, at 43, it's a slightly smaller number, by the way, if you want to know what that number is, head over to moneyguy. .com resources look for the power of power uh how powerful are your dollars thank you Rebecca we really have a real name it will really guide you in every age how powerful can each dollar be that you put in your army of dollar bills .

Andrew, if you haven't been to see it, go see it, save up, go to the building and your 60-year-old self will absolutely thank your 43-year-old self. I think that's a key point, but it's that by the time you're 43 , you should have them, I mean, if you have a good income and the kind of income that you could pay off your house with this early, hopefully, it's getting close to seven figures of searchable assets and that's what I would wonder if you're like we have Paul in our analysis, who was 43 years old, had no investments but had all this home equity.

If Andrew is like that, that's a difficult situation now. Andrew could be because he looks even at the financial order of operations that we talked about if you're saving. 25 percent for the future and you still have extra money after you've gone through the entire cycle and are at step nine. I'm not going to fight you if you pay off your house early. I have this debate with clients all the time. time because you're in a high income situation, you have a lot of resources coming in, there's nothing wrong with splitting the difference because it's not like you're jeopardizing your retirement if you're saving 25 for the future and you still have extra money. resources and you have taken care of the children's college, yes, you will pay off the debt at low interest, I am not going to fight with you about that, are you okay with that or because you sometimes get upset with me?

However, I do not agree with you, however, if I have a strategy where I want to prepay a debt at low interest, we are talking about step number nine, the last step in the financial order of operations, if it were me and was going to do that instead of paying up front for the real thing. Debt because I'm good at math is a curse, what can I do? I know I can pay off a low-interest debt for two and a half three three and a quarter percent or I could invest those dollars for six seven eight percent long term, if it were me and we had to pay up front instead If I were to actually pay it off on the mortgage, I would accumulate those dollars elsewhere and get my pot of money large enough that if I wanted to just write a check to pay the mortgage, I could do so.

I took this back to myself and I did it, yes I did it, I did this exact thing with myself and it worked. I mean, I give you credit. I'm glad every additional contribution I made from March until now looks good. It has served. It has gone well for me. I'm glad I didn't put more into the mortgage so by the way, there's a great question here. Here's a really good one from Joshua la Selva and this is one I don't think we've talked about much. He recently said what percentage of my 401k I should have stock in my own company.

I've read that it shouldn't be more than five to ten percent, but what if I work for a company?good company? For example, Disney. And what happens if I work for? a company I believe in and what if I work for a company I love how much of my 401k should I have stock in my own company? Well, Joshua, here's what you need to remember. Most people when they work for a company think they are working for good. one, I mean, in general, people don't believe, man, I really work for these turkeys, they wouldn't touch their cattle with a 10-foot pole, I mean, obviously, if you felt that way, you might not work. there, what we do not recognize.

It's that sometimes companies that we think are amazing may not be as amazing as we think or maybe there is a change that could be out of our control that could move the sands of financial well-being; Well, what you don't want to do is be in a situation where all of your human capital is tied to this company, which means that's where your salary comes from, that's where your livelihood comes from and something goes wrong and maybe there's a global pandemic and the thing you work for can't open or whatever and there have to be massive layoffs or fill the gap well.

Not only is your human capital at risk, but if all your financial capital is also tied to that same company, now what you need to be your safety net has also been depressed, so you could take a double whammy, which is why we feel like every time you work for like a publicly traded company, that five to ten percent number is a really good number to try to meet not only in your 401k but especially if you are someone who gets rsu participates in an employee stock purchase plan gets options gets performance units if you have that type of compensation coming up you need to think about it Well, how do I ensure I control my exposure to my business in a tax-efficient manner over time?

Because we see it all the time, someone says, hey, you know, I woke up and I was a millionaire today, but 990 thousand dollars are in my company's stock. It's a great place to be, but it's also an aggressive and risky place, so we like the five to ten percent number if you can control it that way, yeah, and I think. that a lot of people that work for good companies like that that they have in addition to the 401k, they probably have access to that employee stock purchase plan where they get discounted stock, you have to take advantage of those things, I mean, don't do it.

Don't get us wrong and think that we don't want you to take advantage of those guaranteed returns that some of these plans that these really good companies offer. You just need to have a plan like Beau said about how you're going to get out. You're basically giving it away every year and still capture the free money they're giving you, just like the employer matches your 401k stock purchase plans. Employees can have free money with the way they give you discounts on stocks. all of that, but don't forget that you don't want your human capital to be tied to where your working capital is and you know that, because financial working capital needs to have some separation, so if this goes wrong, you have this to live off of. and that is the most important part and I can tell you from my own experience that I worked with many Lucent executives.

You know a lot of you wonderful young people probably say who's a loser, well if you go and Google it, this was a big deal back in the day, I mean, before we had the dotcom bubble, all the executives were multiple subfigures, but the problem was that I was tied to the company because at that time I realized that before the dotcom bubble there were all kinds of incentives to have shares of the company in your retirement plans and each of them has had all of their employees completely tied to their company and, um, it came to nothing, I mean, I saw these people go from being mega rich seven figure wallets to losing everything I don't want to get into that situation because yourself, okay, give me permission to do a really nerdy, really deep, like two-minute sidebar, okay, okay, so let's say you're someone listening and you say you know what these guys do. you're right you know I've worked for this company for 30 years and I've been buying stock in my company and I want it all in my 401k and I'm going to cut it to five or ten percent because that's what the money guys said Pause for a second, one of the things you need to recognize if you work for a company and within your 401k you hold your company stock, there's a really unique tax thing you can do called net unrealized appreciation.

It's advanced and it's complicated, what's so funny is, as you know, we're just paid financial advisors during the day, so a lot of you come up and say, Hey, I'm thinking about working with you or hiring you, I don't know. . Which has been up in the water, but I've probably had four conversations in like the last two months, but essentially what it's saying is that there is a special tax treatment that you can use if you have company stock inside your 401k, where potentially You can turn again when you retire. those ordinary income dollars to long-term capital gains dollars, so think about a 25 to 30 percent tax rate all the way up to 15 percent tax rates, yeah, that's amazing, that's something to keep in mind if you want to look at in Google.

Go to Google Net. unrealized appreciation don't go in and sell all the shares in your company if you've built it up over years and decades because there may be a really very exciting planning opportunity that you can take advantage of, yes it's essentially a way to convert something that it's a little scary in a very positive event that's exactly right great great question josh hope we haven't gone in too many different directions okay let's do it let's do another one uh this is from a good friend of mine this is from charles uh charles lemay said hey money boy i get nervous when you do it i read it i read it first to make sure there wasn't any calculation involved i'm not so sure we're the smartest person in the room when charles asks this question, the guy is evil, he's well, how would you look at the different mutual funds in your 401k?

What would you look for to differentiate the good funds from the poor ones? This is a great question because you might be surprised to know that not all 401ks are created. Same, some 401ks are really good, some 401ks are less than optimal, so what are some things you can look for to know if you have a good plan or not? A good plan or good options. They are not good options. The first thing we must do. I would like to see whenever we look inside a 401k plan if there is a wide range of cost index options if I just want to buy the SP 500 or I want to buy the total stock index or I want to buy an international index.

Is there a good, really low-cost option? When I say low cost, I'm talking about less than 20 basis points. Look at those internal basics. Look at internal expenses. Here's one thing to recognize and we've seen it with clients before we had a client once and we said hey no don't worry my 401k is amazing I got cutting edge funds they're amazing it was a sure thing as long as a retirement plan, we went and analyzed it and there were subaccount funds. that were run to mimic cutting-edge funds, but the internal operating expenses were like point nine, one percent of them were more than one percent, that's not what you think of when you think of cutting-edge funds, so make sure of looking at the funds' internal expense ratio.

Within your plan, the other thing we look for within a really good 401k plan is how diverse the options are, you can have five funds, but if it's big growth and growth opportunities, get me some growth and I want more growth and then we have growth and income, there is a chance that those five funds are buying the exact same underlying stocks. You want to make sure you can diversify your 401k plan well across a wide range of asset classes, so if you don't have multiple asset classes represented, you may have a pretty concentrated 401k, so that's something to think about.

You can ask HR, but understand that just because you are buying something that has a different name doesn't mean you are buying something different. We've seen this again with family and program friends who just bought the things that said growth without realizing that the four funds they were using bought the exact same thing, they had no real diversification at all. that we like to look at we're looking at a 401k now this is not like that, it's not always like that, but we like funds that you can do your own internal research on, so I like to look at a 401k and if I think I can find the ticker of that fund and then I can go to Morningstar or Yahoo Finance or CNN Money or fill in the blank and I can search for that fund if the funds you're using don't have tickers, there's a chance It's still a lot of fun, it's just a retired investment for the 401k or there's a chance it's some kind of closed sub account and it's not actually what you think you're getting so we can do our own outside research. of the 401k plan we really like, I would also add to pay attention to your 401k option or plan design options i.e. do you have roth?

I mean, it's a great planning opportunity if it's a 401k or your employer provided 403b um it's also a Roth plan so you can have some tax-free savings. Also know, make sure you don't allow it after taxes. I mean, we see all kinds of planning opportunities where you might know to do mega back. door with the right structure, if they allow distributions in service, there are all kinds of interesting plan designs that can be set up for you that will help you have the tools to maximize your retirement building, this is the last thing I can do.

I will say and I always get nervous when I say these kinds of things because I usually tell people, hey, when you select your funds, don't look at the performance because our human behavior will naturally allow us to say "oh, that's funded." alright last time I put all my money in that one and then next year oh that's fun and you chase it but you want to see some kind of consistency in returns if you're going to see a fund in your 401k and last year it went up 50 and this year it's down 42 and next year it's up 13 and next year it's down 12 if you're going to buy that fund you better understand why you're buying that fund and what it does in your portfolio so I would look for some kind of consistent track record, do your bond funds act like bond funds?

Do your large cap funds actually track a large cap index? Are international funds doing what international funds do? Just make sure you do some research if you're going to design your own portfolio now if you're someone in a 401k who has access to target retirement funds and your assets don't go above that 400,500,000 level make it easy for yourself just go to the retirement fund Goal focus on how much can I save? When do I want to retire? Make sure it's the varieties of index, like the cutting edge target retirement index or the fidelity freedom index, those are the ones we're talking about, perfect, awesome, I'm going to ask one more question about this. one will only take less than a minute and, uh, because just because we get asked this a lot, this is from Tim when he says his rule of thumb for housing expenses is 25 of gross income, what expenses does he include if he hasn't state?

Listening for a while we say that when it comes to affordability, you don't want the cost of housing to exceed 25 percent of your gross income, when we talk about the cost of housing, we're actually talking about taxes on principal interest and insurance , that's what we often refer to now, if you want to be conservative, if you want to make sure that you're structuring your plan to set yourself up for long-term success, you can include other costs, like utilities or ongoing maintenance and that kind of thing, but when we talk about our rule of thumb of 25, we're actually talking about principal interest tax insurance p-i-t-i I like the p-i-t-i p-i-t-i that's what I learned sure you don't want let's do one more do one more let me find one, that was two, you can't go out on something that short, okay, okay, this is from Tim and it's related to housing, so we'll use this one again if you're planning on retiring early and you're already investing 25 okay, is it okay to start attacking the house before the 40 to 50 that you normally recommend, so you say Brian in the prepaid house 45 before that, don't you?

He says what if I'm already on step nine? What if I'm already in the foo, this is where Bo and I probably disagree because I can go ahead and summarize for each of us, yeah, like I would, who asked this question, this is from Tim. Look, I would give Tim permission to say yeah, if he's already on step nine, he's already prefunded the 25, he's taking care of all the college savings and stuff like that, yeah, delete it, go destroy it, I know what you're going to do. I mean, even though you're going to say why you wouldn't invest, wait until you get to that level.of assets and then sell it and then pay off the mortgage if you want, because this is what really happens, no one does that, so we see this all the time.

I'll tell a client, hey, look, let's not do it. pay the extra, we'll just set up this account here, we'll start building and building and building a building and I'll track it and let's say that account comes to about 250,000, I'll call the client and I'll be, hey, Mr. Client, Miss Client, guess which one it is? your mortgage account now above your mortgage balance. He wants me to go ahead, settle it, and send it to him for payment. They never say yes. I said no, no, let's leave it. keep going let's let it continue to grow this has been working pretty well but you have the option to do it so my opinion is you can change your goal change your strategy if you're above that 25 savings but for me I'm going to go with for six seven eight percent growth versus two three percent debt retirement I still feel like it's okay, although if I mean look, there's something about building wealth but also staying well by minimizing and mitigating risk as much as possible. , by that I mean look It's hard to explain because you know I mess with you, bo, and the fact that you still have the warrior mentality and then you'll hit 40 it gets a little more sentimental, I'm sure you realize, oh my god, of all the complications I always looked for. because I remember when I was 20 I used to do tax returns or review tax returns, I'm like man, it would be cool to have all these k1s and have all these complications and then you get to be in your late 40s and you're like, How do you?

Has my life become so complicated financially? Because things simply come from all directions. You're going to crave simplicity and that's why I say after 45 there's nothing wrong with wanting to pay off that debt. I know this guy was under 45, so maybe he leans more into your accumulating assets column, but I think naturally when you're 40 you're going to want to be debt free, I mean, look, chris hagen, chris hogan You know who Chris Hagan is, right? The one you meet every day, the millionaires talk about how the millionaire pays off his mortgage in 10 years. I've been through this millions of times.

That's an accurate statistic, but it's not his first home, it's usually his third home and I know this because I've had him. I think the millionaires revealed it. I think those guys shared with me, but I also know that by my own behavior I mean that I will pay off this house very, you know, in 10 years easily and that's what I don't want. 25 Years 30 Years o 35 year olds put that 10 year old pressure on themselves when you just don't have the right context to let them know what's really right for their situation. I love it, I love it, I love it guys, thank you, thank you, thank you so much for allowing.

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