00:00:01
welcome to the best interest podcast
00:00:04
where we believe Benjamin Franklin's
00:00:06
advice that an investment in knowledge
00:00:08
pays the best interest both in finances
00:00:11
and in your life every episode teaches
00:00:13
you personal finance and investing in
00:00:16
simple terms now here's your host Jesse
00:00:20
Kramer hello and welcome to episode 85
00:00:23
of the best interest podcast my name is
00:00:26
Jesse Kramer later in today's episode
00:00:28
Rachel Camp will be joining me to talk
00:00:30
through some of the funny and scary and
00:00:32
meticulous Financial advice that can be
00:00:34
found on the worldwide web on the
00:00:37
internet Rachel is a cfp who specializes
00:00:39
in working with solo business owners so
00:00:42
we talk a little bit about that too but
00:00:44
first let's do a customary review of the
00:00:46
week this one comes from Apple podcasts
00:00:48
it's a five-star review from absolute
00:00:50
cat who says best podcast on investing
00:00:54
personal finance with lots of variety
00:00:57
Jesse's podcast is great and really
00:00:58
pulls together information from so many
00:01:00
great sources there's so much variety
00:01:03
that keeps the show exciting and fun if
00:01:05
you hadn't had a chance be sure to check
00:01:06
out his blog as well cat thank you for
00:01:09
the kind words for the review and the
00:01:11
fstar rating and if you shoot me an
00:01:13
email cat Jesse bestin interest. blog
00:01:16
I'll be sure to send you a super soft
00:01:18
best interest t-shirt before we get to
00:01:20
Rachel camp today and some of the zany
00:01:23
Wacky World of financial advice that's
00:01:26
out there on the internet I want to
00:01:27
start with a few articles from the best
00:01:29
interest blog that are on a pretty
00:01:31
similar topic and and the first one is
00:01:33
this idea that the answers are all out
00:01:35
there they just aren't necessarily
00:01:37
evenly distributed and it comes from a
00:01:39
fantastic quote uh ascribed to the
00:01:42
Sci-Fi writer William Gibson who wrote
00:01:44
the future is already here it's just not
00:01:46
evenly distributed yet now what exactly
00:01:49
did he mean well the seeds of the
00:01:51
internet were planted in the the 1940s
00:01:53
and the 1950s they sprouted in the' 60s
00:01:56
and '70s the worldwide web bloomed in
00:01:58
1993 and opened the door for most people
00:02:01
on Earth to adopt the internet over
00:02:03
these past 30 years but you could argue
00:02:05
that the internet is actually 70 years
00:02:07
old it just took a while for
00:02:09
distribution to even out now the
00:02:11
ubiquitous Technologies of 2030 or 2050
00:02:14
or 2100 out in the future those seeds
00:02:17
are likely being planted today and
00:02:19
they're growing today but they're just
00:02:20
seeds and they're local seeds at that I
00:02:23
recently heard comedian Jimmy Carr say
00:02:25
we've solved the energy crisis already
00:02:27
the problem is the solution is confined
00:02:29
to new nuclear submarines right now well
00:02:31
he might be right and if so we need
00:02:34
those seeds to float around the world
00:02:35
either above or below water and solve
00:02:38
more Global problems Gibson's quote is
00:02:40
brilliant and there's a wonderful coraly
00:02:42
for personal finance and investing the
00:02:45
answers are here they're just not evenly
00:02:47
distributed yet the stuff you learned in
00:02:48
school history chemistry that the
00:02:51
mitochondria is the PowerHouse of the
00:02:52
cell that stuff has been known for
00:02:54
hundreds of years those Basics are
00:02:56
solved now granted there are still
00:02:58
unresearched Frontiers in many Sciences
00:03:00
where new knowledge occurs math and
00:03:02
physics and biology aren't entirely
00:03:04
solved per se but personal finance and
00:03:07
investing they pretty much are solved
00:03:10
pretty darn close to it the answers are
00:03:12
certainly out there track your spending
00:03:14
spend less than you earn and invest the
00:03:16
difference diversify think longterm etc
00:03:19
etc I'm not creating much new research
00:03:22
here at the best interest either on the
00:03:23
blog around the podcast I'm sharing
00:03:25
known ideas in hopefully engaging
00:03:28
entertaining simple ways I'm wrapping
00:03:31
them in quirky metaphors and Publishing
00:03:33
Nifty charts about those ideas but I'm
00:03:35
not inventing ideas personal finance and
00:03:37
investing are solved those Solutions
00:03:40
though are far from being evenly
00:03:42
distributed and that's why I write and
00:03:45
why I podcast and I think that's why
00:03:47
8,000 plus of you subscribe to my weekly
00:03:49
email it's why the podcast continues to
00:03:51
grow there's far too much noise in the
00:03:54
personal finance and investing space and
00:03:56
it frequently drowns out the real
00:03:57
answers I try really hard to share
00:04:00
signal to fight that noise the answers
00:04:02
are known and I'm trying to distribute
00:04:04
them more evenly that's hopefully my
00:04:06
value ad here I'm not creating new ideas
00:04:09
but I'm starting with the whole world of
00:04:11
both good and bad ideas and then
00:04:14
distilling that down into useful very
00:04:17
good ideas for you guys and with that
00:04:19
idea there are a few big takeaways for
00:04:21
you to to walk away today with the first
00:04:24
one the ideas are known but not
00:04:26
necessarily to you and me I read and
00:04:28
listen to tons of finance and investing
00:04:31
content because I'm still learning
00:04:32
myself there are lots of known answers
00:04:35
out there that I simply haven't crossed
00:04:36
paths with yet but I want to and I hope
00:04:39
when I find a really good idea to bring
00:04:41
that idea to you the second idea or the
00:04:43
second big takeaway today I should say
00:04:45
is all about conversations at the edges
00:04:47
You could argue that finance and
00:04:49
investing aren't entirely solved
00:04:51
especially if you said that new ideas
00:04:53
are being discussed out at the edges for
00:04:56
example do alternative assets belong in
00:04:58
a diversified retir portfolio some
00:05:00
people say yes and some people say no
00:05:03
not everyone agrees with one another and
00:05:05
there are exciting conversations
00:05:07
sometimes arguments that are occurring
00:05:09
in that particular corner of the
00:05:11
investing world I spend some of my time
00:05:13
in those corners and when appropriate I
00:05:15
write or speak or share links about what
00:05:17
is happening in those Corners I think
00:05:19
it's interesting to know I think it's
00:05:20
useful to know especially the more and
00:05:22
more serious you get about this stuff
00:05:24
and therefore I think it's useful for
00:05:26
you all to know the last takeaway is
00:05:28
about the last front here and that's in
00:05:30
quotes now Ben Carlson who's a terrific
00:05:33
blogger and podcaster in his own right
00:05:35
has some great thoughts and he wrote a
00:05:37
great post this last summer that we will
00:05:39
link in the show notes about the
00:05:40
evolution of financial advice and one of
00:05:43
the main points from Ben's thought
00:05:45
process is that behavior is and always
00:05:48
will be the final frontier Behavior will
00:05:51
always be the final frontier in other
00:05:53
words what he's saying is that the math
00:05:54
of finance and investing is more or less
00:05:56
solved but the human brain will forever
00:05:59
be an Enigma creating content about
00:06:01
investor psychology about money habits
00:06:03
that kind of stuff it will always be
00:06:05
essential and valuable if you agree and
00:06:07
find the best interest helpful all I can
00:06:09
ask is that you share my work with
00:06:10
others in your life to distribute these
00:06:13
answers more evenly the blog is still
00:06:15
growing the podcast is growing like
00:06:16
crazy The Weekly Newsletter is now up
00:06:18
above 8,000 subscribers it's awesome
00:06:21
it's fantastic I can't thank you guys
00:06:22
enough and I'll keep working as long as
00:06:24
it's helpful to you the best signal that
00:06:26
I receive is that this project continues
00:06:28
to grow and that many of you reach out
00:06:30
with kind words with questions with
00:06:33
suggestions and I greatly appreciate all
00:06:35
of that so let's continue to invest in
00:06:37
knowledge together and now Switching
00:06:39
gears a little bit to continue on the
00:06:41
the theme of bad financial advice or
00:06:44
crazy things that are out there and
00:06:46
signal and noise I want to read to you
00:06:48
from an article I wrote last summer and
00:06:50
the article is called how to avoid
00:06:52
frauds and Ponzi schemes because just a
00:06:55
short drive down the New York throughway
00:06:57
for my home of Rochester a couple
00:06:59
different interesting Ponzi schemes
00:07:01
occurred or at least started to unravel
00:07:04
last summer now Hamilton New York it's a
00:07:06
cute Upstate Town best known as the home
00:07:08
of Colgate University but it's also the
00:07:10
longtime home of a guy named Burt
00:07:12
Marshall who ostensibly earned his
00:07:15
living as a tax preparer and an
00:07:17
insurance agent and also a local
00:07:19
landlord and some sort of real estate
00:07:21
investor but he's now under
00:07:23
investigation for owing $90 million to
00:07:26
nearly 1,000 individual investors does
00:07:30
marshall have that money no he doesn't
00:07:32
he has at most $21 million in assets
00:07:35
although more recent news and more
00:07:37
recent court appearances have shown he
00:07:39
actually might have less than $10
00:07:40
million in Assets Now where's the money
00:07:43
who knows no one really knows where the
00:07:45
money is his investors are screwed and
00:07:48
they will likely only receive at most
00:07:50
25% back of their original investment
00:07:53
some new reports are actually saying
00:07:54
they're going to receive less than 10
00:07:56
cents on the dollar back now and it begs
00:07:58
the question why would they invest with
00:08:01
Marshall in the first place and what
00:08:03
exactly were these Investments well the
00:08:05
Investments were all real estate based
00:08:07
right give Marshall your money and he
00:08:09
will go out and buy real estate he will
00:08:10
manage that real estate he will collect
00:08:12
rents and you will receive the proceeds
00:08:14
but the reason why they invested in him
00:08:16
is because he promised them guaranteed
00:08:18
8% returns guaranteed well the scary
00:08:22
stuff and we'll come back to this idea
00:08:24
but for now we're going to drive a
00:08:25
little bit Northwest from Hamilton to
00:08:27
another small Upstate town Hannibal New
00:08:30
York I grew up 5 miles west of Hannibal
00:08:32
in a little town called red Creek played
00:08:34
baseball and basketball against Hannibal
00:08:36
athletes my entire childhood and
00:08:38
unfortunately Hannibal is in the news
00:08:40
for bad financial reasons too a recent
00:08:42
State audit revealed that the former
00:08:44
treasurer of the Hannibal volunteer fire
00:08:47
department stole $850,000 between 2016
00:08:51
and 2022 and possibly more significant
00:08:54
funds before that period That's
00:08:56
taxpayers Money And as the truth
00:08:58
unraveled around him the treasurer
00:09:00
walked into the woods and he committed
00:09:01
suicide it's nasty stuff all the way
00:09:03
around but it begs some important
00:09:06
questions namely how do we as individual
00:09:09
investors avoid Ponzi schemes and other
00:09:12
types of common Financial frauds well
00:09:14
the first pro tip up front if you guys
00:09:17
don't have two-factor authentication on
00:09:20
as many of your online accounts as
00:09:22
possible you need to change that
00:09:24
immediately at work I run a podcast
00:09:26
called the trusted partner podcast where
00:09:28
we interview experts and the world of
00:09:29
wealth management financial planning
00:09:31
investment management and we actually
00:09:33
hosted Gary Rossy who's the head of
00:09:35
cyber security at Fidelity Gary's number
00:09:38
one piece of advice to individual
00:09:40
investors it's not complex at all it's
00:09:43
amazingly simple in fact it's to ensure
00:09:45
that you have two-factor authentication
00:09:47
on all of your online accounts it's that
00:09:50
simple so as far as avoiding frauds go
00:09:53
or avoiding any sort of like hack cyber
00:09:55
security type thing two-factor
00:09:57
authentication all the way now when it
00:09:59
comes back to some of these more old
00:10:01
school schemes and frauds like py scheme
00:10:04
one of the biggest tips that I can offer
00:10:05
you all is to make sure that you have
00:10:07
independent third parties that is vital
00:10:10
in both the Hamilton Ponzi scheme and in
00:10:12
the Hannibal fire department fraud a
00:10:15
neutral third party would have prevented
00:10:17
the frauds in the first place in
00:10:18
Hamilton which was the the $90 million
00:10:21
real estate related fraud a third party
00:10:24
custodian would have allowed these
00:10:25
investors to see their account values
00:10:28
without any interference or any
00:10:30
interaction with Bert Marshall the the
00:10:33
fraudster this is vital Bernie maid off
00:10:35
for example did not use a third party
00:10:37
custodian the only way for investors to
00:10:40
see their account data was to say you
00:10:42
know hey Berney could you send me a
00:10:44
statement please it makes fraud way too
00:10:46
easy because all made off had to do or
00:10:49
all Marshall had to do in Hamilton is
00:10:51
fudge the numbers and send the investers
00:10:53
a document that essentially has lies in
00:10:55
it as a counter example right any
00:10:58
fiduciary management firm out there and
00:11:00
I'm using my own firm as an example they
00:11:02
are required by law by federal law by
00:11:04
the SEC to work with a thirdparty
00:11:07
custodian we personally work with Schwab
00:11:09
and with Fidelity uh as such all of my
00:11:11
clients they receive statements from
00:11:14
Schwab or Fidelity that are independent
00:11:16
of any information or any statements
00:11:18
that I give them I can't meddle with
00:11:21
Schwabs or Fidelity statements the
00:11:23
clients don't need to go through me to
00:11:25
get those statements that's how it
00:11:26
should be if there's ever a discrepancy
00:11:29
between what they receive in their
00:11:31
statements and what I tell them I hope
00:11:33
my clients will reach out to me and say
00:11:34
Jesse what what gives here now at the
00:11:36
Hannibal fire department the third party
00:11:38
should have been an independent auditor
00:11:40
for years the department Treasurer there
00:11:42
the fire department's Treasurer was
00:11:44
allowed singular access to the books he
00:11:46
reviewed things with the Department's
00:11:48
accountant but they were friends too and
00:11:49
thus the accountant didn't apply the
00:11:51
same level of professional scrutiny as
00:11:53
he did with his other clients and that's
00:11:55
a quote another screaming red flag was
00:11:57
that the fire department was also
00:11:58
required to to have an independent
00:12:00
Financial audit every year because its
00:12:02
budget was over $400,000 but it never
00:12:04
did so there was no third party there
00:12:07
was no one who was independent of the
00:12:09
fire department everyone was friends and
00:12:11
thus a crime a fraud against taxpayers
00:12:14
slipped under the cracks for years the
00:12:17
lesson here make sure that there are
00:12:19
third parties independent third parties
00:12:21
involved whenever necessary the second
00:12:23
Pro tip to avoid these kind of schemes
00:12:25
and frauds is to do your research and to
00:12:28
understand what is going on on before
00:12:30
investing in any opportunity we should
00:12:32
be conducting extensive research right
00:12:34
an investment in knowledge pays the best
00:12:36
interest look for information online
00:12:38
check reviews verify the legitimacy of
00:12:40
the business or the investment
00:12:42
opportunity be cautious of deals that
00:12:44
promise unusually high returns with
00:12:47
little or no risk there is an intrinsic
00:12:49
relationship between risk and reward
00:12:51
it's something we've talked about here
00:12:52
many times before and any investment
00:12:55
that violates that relationship it
00:12:56
should be viewed cautiously if you have
00:12:58
an invest that promises a huge amount of
00:13:01
reward with a very little low amount of
00:13:03
risk something is fundamentally wrong
00:13:06
there or at least there's something to
00:13:07
be very suspicious about and it requires
00:13:10
you it begs of you to do more research
00:13:12
and to make sure you really understand
00:13:13
what's going on before you put your
00:13:15
money into that kind of investment make
00:13:17
sure you fully understand the business
00:13:19
model of or the economics that underly
00:13:22
the investment if the details seem vague
00:13:25
or if the details just seem overly
00:13:27
complicated it's time for caution
00:13:29
last and perhaps most interesting we
00:13:31
need to know what these schemes often
00:13:33
look like and I'm going to walk you
00:13:35
through a few different common types of
00:13:37
schemes right now just to describe them
00:13:39
in brief and inform you of what these
00:13:41
schemes look like just so that you can
00:13:43
be on the lookout so first Ponzi schemes
00:13:45
if you're not familiar a Ponzi scheme is
00:13:47
a fraudulent investment scam that
00:13:49
promises High returns with little risk
00:13:51
to investors but instead of generating
00:13:53
profits through some sort of legitimate
00:13:55
business activities the scheme uses
00:13:57
funds from new investors to pay returns
00:14:00
to the earlier investors as long as the
00:14:03
early or the older investors remain
00:14:05
relatively content and they don't want
00:14:07
to pull their money out the scheme will
00:14:09
continue to grow but eventually some
00:14:11
sort of event will occur not if but when
00:14:14
it will occur where too many investors
00:14:16
want to access their money and without
00:14:19
sufficient new money entering the scheme
00:14:21
the whole fraud collapses so that is a
00:14:24
Ponzi scheme next we're going to
00:14:26
describe Affinity frauds most Ponzi
00:14:28
schemes actually grow as Affinity frauds
00:14:31
and an affinity fraud and and the Focus
00:14:33
right the key word there is Affinity is
00:14:35
a type of scam where frauders exploit
00:14:37
trust they exploit trust within a
00:14:40
specific group or Community such as a
00:14:42
religious group an ethnic group or
00:14:44
professional circles to deceive
00:14:46
individuals into investing money for
00:14:48
example something we talked about today
00:14:50
hey everyone else in this cute cozy Town
00:14:53
Hamilton New York they're all trusting
00:14:54
me you should trust me too that's an
00:14:57
affinity scheme people like us are doing
00:15:00
things like this it's very common and
00:15:02
it's used Affinity is used in good ways
00:15:04
in a lot of this world right tribalism
00:15:07
so to speak doesn't have to be a bad
00:15:08
thing it can be a good thing people like
00:15:10
us do things like this I suppose many of
00:15:13
you listening to the best interest right
00:15:14
now I mean we have many things in common
00:15:16
and there are reasons why you trust me
00:15:18
because you say oh I'm in a circle of
00:15:20
like-minded people with Jesse and we
00:15:22
trust Jesse but we need to be careful
00:15:25
and I would encourage you to be careful
00:15:26
of me right do your due diligence
00:15:28
against me because we don't want to
00:15:30
blindly give our trust to someone unless
00:15:32
there's real evidence there that they're
00:15:34
providing some sort of good in the world
00:15:36
Affinity frauds combine two powerful
00:15:38
effects described in Robert chini's
00:15:40
best-selling book influence the first
00:15:42
effect is social proof if they're all
00:15:45
doing it I should do it too it's a very
00:15:48
common human trait and then the second
00:15:50
powerful effect is the authority effect
00:15:53
if a person is well-liked if they're
00:15:55
trusted if they are a smart upstanding
00:15:57
member of the community well then of
00:15:59
course I should trust them and in this
00:16:01
case in Hamilton New York the fraudster
00:16:04
Marshall he was a a longtime business
00:16:06
person he ran a successful tax
00:16:08
preparation business he ran a successful
00:16:10
Insurance business a ton of people knew
00:16:12
him a ton of people were already
00:16:14
investing with him and the scheme the
00:16:16
fraud grew that way it was Word of Mouth
00:16:19
used in the most negative fraudulent way
00:16:22
possible okay the next type of scheme
00:16:24
after Ponzi schemes and Affinity frauds
00:16:27
the very well-known the very common
00:16:29
pyramid scheme pyramid scheme it's
00:16:31
similar to a Ponzi scheme but it relies
00:16:33
on recruiting new members rather than
00:16:35
investing new money be cautious if
00:16:37
you're asked to recruit others to earn
00:16:40
money for yourself so right a very
00:16:42
common pyramid scheme might be um one
00:16:44
where you are selling some sort of
00:16:46
product and of course if you sell
00:16:48
product you do well for yourself but you
00:16:51
get even more money if you recruit other
00:16:53
people to sell that product and then if
00:16:56
those people recruit other people to
00:16:58
sell that product and next thing you
00:16:59
know you have this hierarchy that when
00:17:02
you draw it out on a piece of paper
00:17:04
resembles a pyramid of a few people at
00:17:06
the top and many many people down below
00:17:08
and a lot of the money moves up that
00:17:10
pyramid the next thing to be wary of is
00:17:12
any sort of guarantee right any
00:17:14
investment with a guarantee should be
00:17:16
eyed suspiciously especially if it
00:17:18
promises a large return the Hamilton New
00:17:20
York scheme for example it promised an
00:17:23
8% return at a time when the US
00:17:26
government the bond yields were only at
00:17:28
2%
00:17:29
so how can this investment have four
00:17:32
times the return of the US government
00:17:34
with the same exact level of risk all
00:17:36
I'm saying is that it's worth suspicion
00:17:38
and I think if you really look under the
00:17:40
hood at any sort of guaranteed
00:17:42
investment you'll find that they aren't
00:17:44
as guaranteed as maybe they're being
00:17:46
marketed the next thing to keep your eye
00:17:48
out for are pressure tactics while high
00:17:50
pressure sales pitches are not illegal
00:17:52
frauders often use High Press tactics to
00:17:55
rush you into making a decision without
00:17:58
giving you time to think think or do
00:17:59
your own due diligence you should be
00:18:01
skeptical of anyone who insists that you
00:18:03
must act immediately it takes time to
00:18:06
build genuine wealth right it takes
00:18:08
effort it takes consistent financial
00:18:10
planning be wary of any sort of schemes
00:18:12
that promise quick and easy riches
00:18:15
another thing to keep in mind just a
00:18:16
great question to run by anyone offering
00:18:19
you any sort of investment is the
00:18:21
question are you a fiduciary it's not
00:18:23
guaranteed to get you positive results
00:18:24
but it's probably going to push you in
00:18:26
the right direction if you ask someone
00:18:28
are you a fiduciary when Jason zag wrote
00:18:31
the 19 questions that you should ask a
00:18:33
financial adviser a great article from
00:18:35
The Wall Street Journal a few years ago
00:18:37
his most important question was are you
00:18:39
a fiduciary and will you state that in
00:18:41
writing a fiduciary is legally obligated
00:18:43
to work in your best interests many
00:18:45
Financial professionals are not
00:18:47
fiduciaries and working with them means
00:18:49
that they might put their own Financial
00:18:50
interests above yours or the very least
00:18:53
there will be competing Financial
00:18:54
interests which doesn't always ensure
00:18:57
that you're going to get the best advice
00:18:58
for you now it is worth taking that a
00:19:01
small step further and depending on how
00:19:04
much Financial content you listen to you
00:19:06
might be aware of this even that
00:19:07
question alone is no longer truly
00:19:10
sufficient are you fiduciary it does
00:19:13
tend to weed out some of the the chaff
00:19:15
right it does tend to separate some of
00:19:17
the signal from the noise but more and
00:19:19
more there are fiduciaries who have many
00:19:23
different views let's let me put it that
00:19:24
way get 10 fiduciaries in a room yes
00:19:27
they are all fiduciaries in one way
00:19:29
shape or form you could put all of your
00:19:31
financial puzzle pieces out on the table
00:19:33
and say hey put together a financial
00:19:35
plan for me tell me what you think is
00:19:37
best and you're going to get a pretty
00:19:39
wide range of results a pretty wide
00:19:42
range of advice is some of it bad is
00:19:45
some of it good well I suppose that's in
00:19:46
the eye of the beholder I think you're
00:19:48
certainly going to get some advice that
00:19:50
I personally would disagree with and
00:19:51
that's kind of interesting for example
00:19:54
there are a couple fiduciaries who I
00:19:56
know they're cfps so as a cfp they have
00:19:59
to uphold the fiduciary standard and
00:20:01
they push annuities on almost all of
00:20:03
their clients okay to me that's a bit of
00:20:07
an issue I don't quite see how that
00:20:09
works so all I'm saying to you listening
00:20:11
is yes you should be asking people who
00:20:13
offer you Investments are you a
00:20:15
fiduciary that should be one of the
00:20:16
questions you ask but even then there
00:20:19
need to be more questions it can't be
00:20:20
the one and only question because it
00:20:22
does separate a lot of the wheat from
00:20:24
the chaff it doesn't guarantee that
00:20:26
you're getting the the best result that
00:20:28
you can get of course none of us want to
00:20:30
be taken in by a fraud hopefully these
00:20:32
kind of tips and tricks might help you
00:20:35
out might help a few of you out and if
00:20:36
you do come across a potential fraud or
00:20:38
Ponzi scheme report it to your local law
00:20:40
enforcement or financial regulatory
00:20:42
agency reporting these kind of
00:20:44
activities can help protect not only you
00:20:46
but others from falling victim to a scam
00:20:48
we can help each other out here's a
00:20:50
quick ad and then we'll get back to the
00:20:52
show every week I send a quick free
00:20:54
email to thousands of readers that
00:20:56
shares three simple things one my new
00:20:59
articles and podcasts two the best
00:21:02
financial content of the week from all
00:21:04
over the Internet and three a financial
00:21:06
chart that explains some important
00:21:08
Concept in the news that week it's a
00:21:11
great primer to boost your financial
00:21:13
knowhow ah but Jesse I don't want
00:21:15
another email well this might not be for
00:21:18
you but I do hear you which is why I
00:21:20
make it very short sweet and full of
00:21:22
only the essentials a whopping 66% of
00:21:25
subscribers read my email at least once
00:21:28
a month
00:21:29
they're enjoying it and maybe you will
00:21:30
too you can subscribe for free on the
00:21:33
homepage at bestin interest. blog again
00:21:36
that's a free no strings attached
00:21:38
subscription at bestin interest. blog
00:21:41
and now Rachel Camp is going to be
00:21:42
joining us on the podcast Rachel is the
00:21:44
founder of Camp wealth she's a cfp camp
00:21:47
wealth is her solo financial planning
00:21:49
practice and she's a a graduate of the
00:21:51
Indiana University Kelly School of
00:21:53
Business with a degree in finance hey my
00:21:56
wife Kelly also graduated from the Kelly
00:21:58
School of Business and Rachel as you'll
00:22:01
hear specializes in working with
00:22:02
solopreneurs solopreneurs they face kind
00:22:04
of unique Financial challenges in the
00:22:06
combination of their personal financial
00:22:09
planning their family financial planning
00:22:11
but also their business's Financial
00:22:12
Planning and tax situation and so Rachel
00:22:15
focuses on personalized and early
00:22:17
planning to help her clients become
00:22:19
financially independent Rachel also has
00:22:21
grown her practice immensely through
00:22:23
social media and whether it's on YouTube
00:22:26
or LinkedIn or Twitter Rachel puts out a
00:22:29
lot of useful tips and tricks and she
00:22:31
puts out some really fun videos
00:22:33
including some content where she debunks
00:22:35
a lot of the most common scams or frauds
00:22:38
or just bad advice that can be found on
00:22:40
the internet and we focus on that today
00:22:43
so without further Ado here is Rachel
00:22:50
Camp Rachel thanks for joining us today
00:22:53
and as I alluded to in your intro which
00:22:55
which you haven't heard yet you are a a
00:22:58
a cfp you're a fiduciary adviser and
00:23:00
you've been using online content social
00:23:02
media content YouTube videos as a big
00:23:05
part of your business and just because
00:23:06
you're spreading very valuable education
00:23:09
that people want to to hear more of and
00:23:12
I saw a recent I think it was a YouTube
00:23:13
video that you put out that had some
00:23:15
very fun unique Financial advice that
00:23:19
you as a cfp decided to give some
00:23:21
commentary on so I thought maybe we
00:23:22
could review some of that today maybe
00:23:24
the place to start with is those people
00:23:27
on the internet who claim that 401ks are
00:23:30
a scam what exactly is the logic or the
00:23:33
false logic behind this idea and why and
00:23:35
or who is pushing this bad idea with
00:23:39
every decision if somebody's selling
00:23:41
something to you I'm always a fan of
00:23:42
trying to figure out the incentive right
00:23:45
so if somebody is telling me something
00:23:47
that goes so strongly against
00:23:49
traditional Financial advice it should
00:23:51
send up a flag to say why is this person
00:23:54
saying this to me so not surprisingly
00:23:57
there is a group that is consistently
00:24:00
calling the 401K a scam now I've seen
00:24:02
other people do it as well but they
00:24:04
there's always some incentive it's
00:24:06
because if you don't put your money in
00:24:08
the 401K well they have an option for
00:24:11
where you can put your money and it's a
00:24:13
much better option and that's what they
00:24:15
want to sell to you so Jesse I'm sure
00:24:18
you see this as well but it is often
00:24:20
insurance sales people that we are
00:24:23
seeing say the 401K is a scam because
00:24:26
again if you don't put your money in the
00:24:27
401K hey you can redirect those funds
00:24:29
elsewhere we can get into exactly what
00:24:32
they're saying as far as you know tax
00:24:35
efficiency with what they are selling
00:24:37
versus the 401K I often see the 401K big
00:24:40
tax bomb argument quite a bit where
00:24:43
they're saying if you have a million in
00:24:44
a 401k you don't really have a million
00:24:47
because you know you got to pay
00:24:49
something like 30% to taxes on it so
00:24:51
really you have 700k and they're using
00:24:54
this very weird scenario where somebody
00:24:56
is pulling out a million from their 401K
00:24:59
all at once which I have never seen
00:25:02
happen is a terrible strategy I've never
00:25:04
seen an adviser recommend that but it's
00:25:07
starting with just that strategy alone
00:25:10
is just completely illogical and that's
00:25:12
just one example of of something that
00:25:14
they say that doesn't make sense so I
00:25:16
like where you started it reminded me of
00:25:18
a great Charlie Munger quote show me the
00:25:20
incentives and I'll show you the
00:25:21
outcomes and the idea there is that if
00:25:23
someone is selling say a whole life
00:25:25
insurance or an indexed universal life
00:25:27
insurance po policy or strategy which
00:25:29
comes with a really really really big
00:25:31
commission for that salesperson well all
00:25:33
of a sudden they're going to be
00:25:34
incentivized to say many different
00:25:36
things that could possibly lead to the
00:25:37
sale even if the thing that they're
00:25:39
saying isn't exactly truthful or honest
00:25:41
and I think that's some of what we see
00:25:43
and and it's too bad because I actually
00:25:45
think maybe this isn't true for everyone
00:25:47
out there but some of the insurance
00:25:49
salese who I've seen say on Tik Tok like
00:25:52
one of the videos I saw you use they
00:25:54
tend to be either younger or newer to
00:25:57
the industry and a lot of times they've
00:25:59
been through training where someone
00:26:01
higher up in their company has told them
00:26:03
no no what what you're doing is good
00:26:05
what you're doing is right what you're
00:26:06
doing is beneficial to people and and
00:26:08
401ks really are evil and so yes they
00:26:11
they build these Straw Men as you were
00:26:12
describing that one scenario of pulling
00:26:14
a million dollars out all at once and
00:26:16
therefore putting yourself in one of the
00:26:17
highest federal tax brackets something
00:26:19
that would almost never be advised by a
00:26:21
real cfp in in a real situation that's a
00:26:24
straw man scenario right you're building
00:26:26
up some fake scenario then just to punch
00:26:28
it down I know I know one of the other
00:26:30
arguments that's made has to do with
00:26:32
taxes and have has to do with life
00:26:34
insurance and the lack of taxes on a
00:26:36
whole life insurance policy but maybe we
00:26:38
can just quickly sidebar into term life
00:26:41
whole life sure your personal thoughts
00:26:43
on if one is is more beneficial than the
00:26:45
other I know I have my thoughts but I
00:26:47
won't I won't try to bias you there and
00:26:49
then right is there any sort of like
00:26:50
hidden tax strategy that has some some
00:26:53
big benefit from Life Insurance yeah I I
00:26:56
find the tax efficiency argument really
00:26:58
funny because Jesse I don't know if
00:27:00
you've ever seen these policies but I
00:27:01
used to work exclusively with retirees
00:27:04
so I actually had at times people come
00:27:06
in and they had a whole life policy that
00:27:09
had been enforced for 30 years so is
00:27:11
amazing because I actually got to see
00:27:13
what this policy did and if it lived up
00:27:16
to all of the initial claims right and
00:27:19
inevitably the clients were always
00:27:21
frustrated because it did not the
00:27:23
Returns on it were awful and that's one
00:27:25
of the problems is that it sold as a
00:27:28
investment product rather than insurance
00:27:31
which is what it is and so when we
00:27:33
looked at the returns of these policies
00:27:35
that had been enforce they were terrible
00:27:37
and adding tax efficiency to that I
00:27:40
always like to say well a z or 0% return
00:27:44
is actually super tax efficient but you
00:27:47
wouldn't want that would you so I am
00:27:49
happy to pay higher or more taxes on
00:27:52
something if the return is going to be
00:27:54
better tax efficiency is just one part
00:27:57
of it the common saying is don't let the
00:27:59
tax Tail Wag the investing dog so yes
00:28:03
tax efficiency we need to look at and
00:28:05
they have a point that there is a a tax
00:28:07
efficient component with it but I I
00:28:10
don't think it's worth it when we
00:28:11
consider the overall Returns the
00:28:13
expenses with this product just doesn't
00:28:16
make sense most of the time now at my
00:28:19
first job I actually used to work with
00:28:22
ultra ultra high net worth families and
00:28:24
so there were times where we use
00:28:26
permanent life insurance for State
00:28:28
planning purposes it is a way to pass on
00:28:32
uh money in a tax efficient manner can
00:28:34
certainly make sense but for the vast
00:28:36
majority of people this strategy does
00:28:39
not apply to them and I love that you
00:28:41
pointed that out because that's a sales
00:28:43
tactic that I see used where someone
00:28:45
will say this insurance strategy is used
00:28:48
by the ultra rich and they're kind of
00:28:50
right if you're flirting with that
00:28:52
what's that the state tax limit right
00:28:53
now is around 27 million 26 27 million
00:28:57
at the federal level as a married couple
00:28:59
if you're flirting with that total level
00:29:00
of wealth and you're planning on handing
00:29:02
down assets to your children there can
00:29:05
be strategies in which some sort of
00:29:07
permanent life insurance policy actually
00:29:09
provides a benefit to you so yeah in
00:29:11
that way the ultra Rich are using it but
00:29:14
if you're under that limit which 99.9%
00:29:17
of us are well okay you you don't
00:29:19
qualify basically right you don't need
00:29:21
that kind of benefit as we've talked
00:29:23
about on the best interest podcast
00:29:24
before just about every scenario merits
00:29:28
at the very least starting with term
00:29:29
life insurance you probably shouldn't
00:29:32
mix your insurance and your investment
00:29:34
products all inone there's no need for
00:29:35
that speaking of investment products
00:29:38
Rachel what about my new options trading
00:29:40
strategy that returns 5% per week I mean
00:29:43
can you sign up for my course or do you
00:29:45
want to learn how to trade options what
00:29:46
is going on with all these people on
00:29:48
social media who are trading options and
00:29:50
somehow obtaining ridiculous amount of
00:29:53
investment return yeah what happens when
00:29:55
they say here's my course you can do it
00:29:57
too is is that they're making more money
00:29:59
on you than they are on their option and
00:30:00
strategy that's the simplest way to put
00:30:03
it but yeah no anytime I see these these
00:30:05
trading strategies and you know we can
00:30:07
go into what options trading is there's
00:30:09
so many different strategies there and
00:30:11
there's a lot of complexity and that's
00:30:13
kind of what they hide behind right how
00:30:15
comp complex it is and that they can
00:30:18
explain it to you and and how to how to
00:30:20
make it work I saw statistic I meant to
00:30:22
dive into it but I saw one the other day
00:30:23
that said only 5% of option Traders
00:30:28
actually make money so 95% of the people
00:30:31
are not making money I need to still
00:30:33
look into the validity of that but it
00:30:35
doesn't surprise me and so anytime I see
00:30:38
people on social media talking about a a
00:30:40
strategy that they have that you can
00:30:42
have access to if you buy their course
00:30:44
an immediate red flag should go up
00:30:46
because if they had this really
00:30:49
effective strategy of making 5% a week
00:30:52
which is insane that is a a great return
00:30:55
they would not be sharing that with you
00:30:57
they would be keeping that information
00:30:59
to themselves if anybody had a
00:31:02
individual stock picking strategy that
00:31:04
was beating the market or working really
00:31:06
well they would keep that to themselves
00:31:08
or they would only give access to it to
00:31:11
a certain amount of people and they
00:31:12
would make money on that they would not
00:31:13
turn around and sell you a $300 course
00:31:16
it just doesn't make any sense I I
00:31:18
definitely want to come back to that
00:31:19
idea but let's quickly just touch on for
00:31:21
those uninitiated what exactly an option
00:31:24
is right I think most people know has
00:31:26
something to do with stocks kind of but
00:31:28
what exactly is an option and then you
00:31:30
know what would one of these so-called
00:31:32
options trading strategies might it look
00:31:34
like yeah so an option is apply named
00:31:38
because it's an option to buy something
00:31:41
so an option to buy a security so rather
00:31:44
than saying holding Apple stock you
00:31:46
could buy an option A call option for
00:31:49
the option to buy Apple stock now that
00:31:53
comes at a cost to buy the option so you
00:31:56
pay for that and then you exercise the
00:31:59
option if it is in the money if it makes
00:32:01
sense to do so so it can make sense
00:32:04
because if you want to if you have a
00:32:05
hunch that Apple stock is just going to
00:32:08
take off then you might buy a call
00:32:11
option and then gives you the option to
00:32:14
buy Apple stock say at $85 but you think
00:32:16
Apple Stock's going to be at
00:32:19
$130 now you're making a much bigger
00:32:22
profit because you're buying in at a
00:32:24
lower amount compare that to the person
00:32:27
who just owns Apple stock sure you might
00:32:29
not have that same upside potential but
00:32:32
imagine if Apple stock just increases by
00:32:35
$5 and it's not in the money for the
00:32:39
person who bought the call option the
00:32:42
the option would expire an exercise but
00:32:45
you as the person who owns Apple stock
00:32:47
would still hold it and have some profit
00:32:49
so I hope that makes sense I know it's a
00:32:51
bit confusing but that's the call option
00:32:54
I think is one of the simplest ones to
00:32:55
look at from what I remember of of
00:32:57
learning about puts and calls is yeah
00:32:59
that idea that you want to give yourself
00:33:02
the option to potentially buy or sell a
00:33:05
security at some future date and you're
00:33:07
kind of making a weighted bet you have
00:33:10
to pay a little bit of a fee up front in
00:33:11
order to secure that optionality for
00:33:13
yourself but then you're making a little
00:33:15
bit of a weighted bet on whether the
00:33:16
price will go up or down in the future
00:33:18
and in some cases and and this is where
00:33:20
again for what it's worth I don't use
00:33:22
any options myself and none of our
00:33:24
clients that I know of here use options
00:33:26
like we don't recommend options
00:33:27
strategies at all but again you can you
00:33:30
can almost think of it as some types of
00:33:31
options are pretty aggressive other
00:33:34
types are pretty conservative depending
00:33:36
on if you're buying or selling and if
00:33:37
you think prices will go up and down so
00:33:39
in some cases it almost acts as leverage
00:33:41
and you can really kind of like jump
00:33:43
start your returns but in other cases it
00:33:45
almost acts as like a bit of a hedge
00:33:47
where you can protect against some
00:33:49
downside if the stock moves in a
00:33:51
Direction that's against you and so I
00:33:53
suppose that maybe leads us into what
00:33:54
some of these so-called option
00:33:56
strategies might look like I mean even
00:33:58
if one of these salespeople were right
00:33:59
in what they were selling I mean do you
00:34:01
have any gut feel for what would be
00:34:03
going on underneath the hood I I like
00:34:05
the point you made of using it as
00:34:08
leverage so the important idea here is
00:34:11
that yes it can enhance returns but then
00:34:14
it also enhances the downside so there's
00:34:18
covered call strategies there's naked
00:34:21
call strategies where you don't actually
00:34:23
own the underlying Securities there's
00:34:25
straddles there's a bunch of different
00:34:27
ones
00:34:28
but I think the important part is if you
00:34:30
expose yourself to Too Much leverage in
00:34:33
any capacity you actually have the
00:34:36
potential to completely lose it all and
00:34:38
it's funny I saw just on the other day
00:34:40
on a Reddit thread somebody was asking
00:34:42
about option strategies and how they
00:34:44
work and somebody was sharing that he
00:34:47
uses option strategies to make money and
00:34:50
he shared that he had a seven fig
00:34:52
portfolio and the irony behind this was
00:34:56
somebody was saying wow you have a seven
00:34:57
figure portfolio how did you get to that
00:34:59
point how does this work and he said
00:35:01
well I started with a seven figure
00:35:04
portfolio I lost like 66% of it but now
00:35:08
I've recovered and I've gotten back up
00:35:09
to that seven figure portfolio whereas
00:35:12
if this person had just invested in
00:35:14
index funds what he had started at would
00:35:16
be much greater now he's just gotten
00:35:18
back up to that point but I I do think
00:35:21
one of the issues is people look at this
00:35:23
in a very shortterm time frame so like I
00:35:26
earned 5% turn this week I don't care
00:35:29
what you earned on a week or a month or
00:35:31
a year or two years I want to see a
00:35:33
10year at least time Horizon for these
00:35:36
strategies before it ever pequs my
00:35:39
interest we can all get lucky in the
00:35:40
short term that is pure luck but over
00:35:43
the long term that is skill exactly we
00:35:46
haven't even touched on the fees like I
00:35:48
know options trading usually just has a
00:35:50
significantly higher fee than
00:35:52
traditional investing in the stock
00:35:53
itself or investing in an index fund
00:35:55
itself and so not only do you have to be
00:35:57
correct with your options trading you
00:35:59
have to be correct enough to overcome
00:36:01
any fees that you're paying we talked
00:36:03
about earlier how options can be kind of
00:36:06
more aggressive than traditional
00:36:07
investing or less aggressive assuming
00:36:09
that in one of these 5% per week
00:36:11
strategies you're being much more
00:36:13
aggressive than typical or than than
00:36:15
traditional investors would be we have
00:36:17
to remember this important Axiom I think
00:36:19
all investors do which is anytime you're
00:36:21
exposing yourself to upside you have to
00:36:24
be aware that you're exposing yourself
00:36:26
to some sort of equivalent down side and
00:36:28
it's true all across the risk reward
00:36:30
Spectrum it's true for lowrisk treasury
00:36:33
bonds where yeah there's not much
00:36:35
downside there's also not much upside
00:36:37
it's true for stocks where there's more
00:36:39
upside there's also more downside and
00:36:41
when you're doing some sort of high-risk
00:36:43
options trading strategy that so
00:36:45
supposedly gets you 5% per week you have
00:36:48
to be aware there's a deep dark downside
00:36:51
hiding underneath the surface that it
00:36:53
might come get you okay Rachel let's
00:36:55
talk about one of my absolute favorite
00:36:58
people tongue and cheek on the best
00:37:00
interest podcast Mr Rich Dad Poor Dad Mr
00:37:04
Rich wolf poor sheep himself Robert
00:37:06
kosaki are we all just money brainwashed
00:37:09
as Robert kosaki claims we are
00:37:12
apparently I mean he has some very
00:37:15
strong opinions right and not to say
00:37:17
that there aren't some important and and
00:37:20
good moments in Rich Dad Poor Dad there
00:37:22
are some some good tidbits in there and
00:37:24
I don't know if he's always been this
00:37:25
way but just lately it seems that he is
00:37:28
making some really aggressive bets on
00:37:32
where the market is going so there's a
00:37:34
huge market crash coming up he loves to
00:37:36
say that constantly or you know put
00:37:39
everything in crypto so he's just
00:37:40
starting to to make really strong
00:37:42
stances now as far as being money
00:37:46
brainwashed and that we are taught to
00:37:49
live a certain lifestyle that we get a
00:37:52
job we you know contribute to our 401ks
00:37:54
we have the the two and a half kids I
00:37:57
don't know if I agree with this being a
00:38:01
a brainwashing strategy I think again
00:38:04
we're just we live in a society and this
00:38:06
is what the norm is this is what we've
00:38:08
seen our parents do and I think there's
00:38:10
a lot of people out there that could
00:38:12
take this traditional path and be just
00:38:14
fine and I think his argument is that if
00:38:17
we take this traditional path we are are
00:38:20
brainwashed I think many of us are aware
00:38:22
that there's other paths that we can
00:38:24
take and we can bet big on our careers
00:38:27
we can bet big on our investments we
00:38:29
have these other paths but for some
00:38:31
people they don't want to go down that
00:38:33
path and I think that's fine I I agree
00:38:35
that if you want to really build wealth
00:38:38
young or you know start a company you do
00:38:41
have to go against the norm you do have
00:38:43
to challenge a lot of of what we've been
00:38:45
taught there's a lot of outside of the
00:38:48
box thinking that's required if you're
00:38:50
really going to do something like
00:38:52
disrupt an industry or be the next
00:38:54
Zuckerberg or something like that so I I
00:38:57
don't think it's totally wrong to say
00:38:59
that we have to challenge conventional
00:39:01
Norms at times if that's what we want to
00:39:03
do but I also don't think it's accurate
00:39:04
to say we're brainwashed if we decide we
00:39:06
just want to go the traditional route of
00:39:09
the W2 job and the 401K and that's you
00:39:13
know if he had said something like I
00:39:14
think too many people are spending
00:39:16
beyond their means I think too many
00:39:18
people are keeping up with the Joneses I
00:39:20
think too many people are not saving
00:39:22
enough for the long run or maybe too
00:39:24
many people are signing up for options
00:39:26
trading classes they're looking for that
00:39:28
short-term win we have all been money
00:39:30
brainwashed I'd be like oh that's that's
00:39:33
it's a reasonable Point that's a
00:39:35
reasonable point but yeah I think the
00:39:36
one clip I saw of his had something to
00:39:39
do with right everyone out there is the
00:39:41
car the house the 401K the nuclear
00:39:43
family and we've all been brainwashed
00:39:45
into thinking that this is the right
00:39:47
path and it's like well there's nothing
00:39:49
objectively wrong with that path and as
00:39:52
you alluded to Rachel I think it's
00:39:53
really important and Robert kosaki isn't
00:39:55
alone in this he's proba just the most
00:39:58
visible or one of the more visible
00:40:00
people who falls into this particular
00:40:01
camp that I'm about to describe not a
00:40:03
Rachel Camp by the way different kind of
00:40:05
Camp thank you different kind of Camp
00:40:07
got to be clear with that but it's the
00:40:09
camp of the kind of the fear-mongering
00:40:12
guru he sells by fear I mean he is a
00:40:15
Salesman he's a terrific salesman give
00:40:16
him credit for selling everything that
00:40:18
he sells but it's that idea that if I
00:40:20
can instill fear in you if I can tickle
00:40:23
that little that deep down fear inside
00:40:24
that your family isn't as financially
00:40:26
secure as as you thought they were I've
00:40:28
got you in a state of kind of emotional
00:40:31
intensity where now you're ready to hear
00:40:33
my pitch yeah and now you're ready to
00:40:34
really Buy in yeah and as I see some of
00:40:38
the stuff that kosaki says or writes if
00:40:41
you look at his 10 or 15 year track
00:40:43
record on calling stock market crashes
00:40:46
Robert like Earth to Robert the stock
00:40:48
market's just about in his best of
00:40:50
places that's ever been in and every
00:40:52
time he's called for a crash in the last
00:40:53
15 years he's been fundamentally wrong
00:40:56
and he keeps on doing it just because
00:40:58
enough people out there are tuned into
00:41:00
him and listening and are willing to buy
00:41:01
it maybe they haven't noticed what he's
00:41:03
done in the past but yeah I just I think
00:41:05
he sells on fear way too much the fear
00:41:08
mongering really bothers me and you know
00:41:11
from somebody that posts on social media
00:41:13
and I do want to create this personal
00:41:15
brand I understand that that is an
00:41:17
option that I will never want to take
00:41:20
right I prefer to inspire to motivate to
00:41:23
have optimism really it's the pessimism
00:41:25
that I think that really bothers me and
00:41:27
I can laugh about it and laugh it off
00:41:29
but I I've seen it impact my clients
00:41:32
I've seen clients come in especially
00:41:34
when I worked with retirees who were
00:41:35
really afraid because they were seeing
00:41:38
things that Robert kosaki was saying or
00:41:40
anybody was saying that they were using
00:41:43
fear to sell their own product and that
00:41:46
is it's frustrating I think it's a cheap
00:41:49
hack to use in marketing and it's
00:41:53
immoral frankly and so it it's so
00:41:55
frustrating to see people use that but
00:41:57
it's much more frustrating because I
00:41:59
actually do see the impact on people who
00:42:02
are influenced by it and who maybe don't
00:42:04
have the financial literacy or the
00:42:06
background to understand why they
00:42:08
shouldn't listen to something like that
00:42:11
again it comes back to incentive comes
00:42:12
back to very important context we have
00:42:15
to consider that when somebody is is
00:42:17
making this Grand statement or calling
00:42:20
for a big crash is there a reason that
00:42:23
they would benefit from me being afraid
00:42:25
that's something we have to ask
00:42:27
ourselves totally I just think about how
00:42:29
often has Warren Buffett sat up there on
00:42:31
the stage in Omaha and spent time
00:42:34
driving fear into his investor audience
00:42:37
before I mean it's like he doesn't do it
00:42:39
right and we try to keep things above
00:42:41
board here on the best interest podcast
00:42:43
and listeners if you have any feedback
00:42:44
if I've been fearmongering too much and
00:42:46
you want to send that feedback you can
00:42:48
send it to Jesse best bestin interest.
00:42:50
blog maybe subject line say kosaki is
00:42:53
not that bad and I'll I'll read your
00:42:54
email there here's a quick ad at then
00:42:57
we'll get back to the show every week I
00:42:59
send a quick free email to thousands of
00:43:01
readers that shares three Simple Things
00:43:04
One my new articles and podcasts two the
00:43:07
best financial content of the week from
00:43:09
all over the Internet and three a
00:43:11
financial chart that explains some
00:43:13
important Concept in the news that week
00:43:16
it's a great primer to boost your
00:43:18
financial knowhow ah but Jesse I don't
00:43:20
want another email well this might not
00:43:23
be for you but I do hear you which is
00:43:25
why I make it very short sweet and full
00:43:27
of only the essentials a whopping 66% of
00:43:31
subscribers read my email at least once
00:43:33
a month they're enjoying it and maybe
00:43:35
you will too you can subscribe for free
00:43:38
on the homepage at bestter interest.
00:43:40
blog again that's a free no strings
00:43:43
attached subscription at bestin
00:43:45
interest. blog that was a lot of fun and
00:43:47
now I want to shift though into
00:43:48
something that is maybe much more in
00:43:51
your professional business Forte because
00:43:54
you spend a lot of time working with and
00:43:56
help
00:43:57
a pretty interesting Niche group of
00:44:00
clients solo entrepreneurs or people who
00:44:03
own their own business and maybe I'll
00:44:05
let you define it I assume by the name
00:44:07
they're the one and only employee but
00:44:09
maybe you can just start there I mean
00:44:11
what exactly is your typical client the
00:44:14
solo entrepreneur and and what are some
00:44:15
of the problems that they're facing yeah
00:44:17
so yeah SOLO entrepreneur solopreneur
00:44:19
whatever you want to call it it's a
00:44:20
oneperson business I lump in anybody
00:44:23
who's working with like a spouse in
00:44:25
there too cuz I do see a lot of those
00:44:28
clients or that profile and I still
00:44:30
consider them solopreneurs I myself am a
00:44:33
solopreneur now I do have a 1099
00:44:35
employees so I hope that does not
00:44:38
exclude me but I have such an interest
00:44:41
in this honestly selfishly because it's
00:44:43
what I am and so I wanted to learn about
00:44:46
how to optimize my own finances my
00:44:49
business how to make sure that
00:44:50
everything was was really organized
00:44:52
because the surprising thing is even if
00:44:54
you're just a one person business
00:44:57
there's still a lot of complexity and
00:44:59
administrative things that you have to
00:45:01
be sure that you're on top of being a
00:45:03
business owner is is great I'm a huge
00:45:05
fan of it I love it and I love to see
00:45:07
people doing it but it's really
00:45:09
difficult and we can feel really
00:45:10
overwhelmed especially at the beginning
00:45:12
when we don't know what to do so being
00:45:15
in the finance industry and experiencing
00:45:17
this overwhelm I knew that if I was
00:45:20
experiencing this with the experience
00:45:22
and the context that I have that other
00:45:24
people must be experiencing it even at a
00:45:26
higher level so I'm a huge fan of this
00:45:29
shift in the digital age there's so many
00:45:31
people now who can make money just from
00:45:33
their phone they can find clients and
00:45:35
build businesses just by educating Their
00:45:37
audience and I love that and we're
00:45:39
seeing this huge increase in
00:45:41
solopreneurs so I just want to help them
00:45:43
and from the finance side the business
00:45:45
side just make it easier on them so they
00:45:47
can spend time actually growing their
00:45:49
business and focused on what they love
00:45:51
doing I'm glad you mentioned that cuz I
00:45:53
was reading some statistics about how
00:45:56
essentially one of the Silver Linings of
00:45:58
covid one of the benefits was so many
00:46:00
individuals ended up they had maybe more
00:46:03
free time than they expected or maybe
00:46:05
they were in a a position of kind of job
00:46:08
insecurity they didn't know where their
00:46:09
next paycheck was coming from but for
00:46:11
one reason or another they started a
00:46:13
solo business they started a side hustle
00:46:16
and that that blossomed into something
00:46:17
bigger and so now there are so many more
00:46:19
solo preneurs than there were before and
00:46:22
maybe one of the places to start is I
00:46:24
would just think if I'm starting my own
00:46:26
business I know there's this idea of
00:46:28
business structure that have different
00:46:30
implications and so is there a
00:46:32
difference between let me know if I'm
00:46:34
phrasing the question wrong Rachel about
00:46:35
LLC or an es Corp or a a C Corp or a
00:46:40
sole proprietorship I mean are these
00:46:41
even different things to begin with OR
00:46:43
where do you kind of guide some of your
00:46:45
clients in that conversation yeah I I
00:46:47
prefer to look at it in the context of
00:46:49
okay we have liability and let's talk
00:46:51
about that and protecting our personal
00:46:53
assets and then we have tax tax savings
00:46:55
tax structure and there are are two
00:46:57
different things that we can consider
00:46:59
here now if you start a solo business
00:47:03
and you start collecting payments and
00:47:04
they're just writing checks in your name
00:47:06
by default you are a soulle proprietor
00:47:09
so the revenue everything is going to
00:47:10
flow through to your personal tax return
00:47:13
that's the default status you don't have
00:47:14
to do anything to be a so proprietor now
00:47:17
on the other hand this is where again
00:47:19
our our good friend social media has
00:47:21
maybe had a negative impact is the LLC
00:47:25
and not correctly understanding exactly
00:47:27
what an LLC does and what it
00:47:29
accomplishes so you'll see a lot of
00:47:31
people on social media saying all you
00:47:34
need to do is open up an LLC and now you
00:47:36
have all of these writeoffs that you can
00:47:38
use it's important to know that an LLC
00:47:41
is uh a limited liability company it is
00:47:45
protecting your personal assets it's a
00:47:48
liability decision it's not a tax
00:47:50
savings decision now there's the next
00:47:52
step there's LLC escort but just the LLC
00:47:56
on its own is not actually going to save
00:47:58
you on taxes it's just going to separate
00:48:02
your personal assets from your business
00:48:04
assets which is really important but we
00:48:07
have to make that decision thinking
00:48:08
about liability not tax savings now
00:48:11
after we get to a certain point of
00:48:13
Revenue say you know the money is really
00:48:15
coming in we're really profitable now we
00:48:17
can start looking at tax savings and
00:48:19
setting up a structure that makes sense
00:48:21
from a tax savings perspective and again
00:48:23
we see social media all over the place
00:48:25
saying escort elect es Corp it's going
00:48:27
to save you a ton of money in your
00:48:29
business potentially that's something
00:48:31
that has to be made for each person to
00:48:34
see if it makes sense the ESC Corp the
00:48:36
basic idea behind it is now you're going
00:48:39
to start payroll you're going to start
00:48:41
paying yourself a W2 salary and the
00:48:43
other income is going to be seen as
00:48:45
distributions that avoids that
00:48:47
self-employment tax uh the distribution
00:48:49
side does so that's the idea is that
00:48:52
we're saving on tax because we're
00:48:53
pulling out some of the self-employment
00:48:56
tax we're not having to pay now the es
00:48:58
Corp just to give kind of a warning here
00:49:01
it it can make sense but sometimes I see
00:49:04
people elect it too quickly when maybe
00:49:07
they don't have the the revenue built up
00:49:10
yet for it to make sense because it is
00:49:12
going to add some administrative burden
00:49:15
some costs just some headache some
00:49:17
return on Hassle and it could even
00:49:19
negatively impact you if you're maxing
00:49:21
out a solo 401K they could potentially
00:49:24
bring down what you can put into your
00:49:25
solo 401k okay there's qbi deductions
00:49:29
which is a whole another topic but the
00:49:32
main point with the es Corp and I don't
00:49:34
have a rule of thumb like sometimes I
00:49:36
see people say 100K profit and then go
00:49:39
to the ESC Corp maybe that could be a
00:49:41
starting point but I really do think
00:49:43
each person needs to make this decision
00:49:46
for themsel and understand what is
00:49:49
coming when they elect escorp what
00:49:51
they're are now going to have to do
00:49:53
electing escorp and is that the kind of
00:49:55
decision Rachel where maybe you would
00:49:56
suggest someone sit down with let's say
00:49:58
someone has a team of professionals
00:50:00
let's say they're working with you know
00:50:02
you as a as a cfp professional they're
00:50:04
working with an accountant who's a CPA
00:50:06
maybe they're working with a corporate
00:50:08
or a business attorney to help them with
00:50:10
some of the legal side of things who
00:50:12
amongst that professional team can help
00:50:14
them with that decision or is it kind of
00:50:16
everybody's involved yeah it can
00:50:18
everybody can have a say because each
00:50:20
person is going to have their own unique
00:50:22
perspective the attorney is going to
00:50:24
think about asset protection and the
00:50:25
liability I see most of the time it's
00:50:28
myself the cfp and the accountant
00:50:30
discussing the accountant I use quite a
00:50:32
bit calls it an S analysis and basically
00:50:34
we just run a scenario to see if it
00:50:36
makes sense from a tax standpoint but if
00:50:39
you have this team of professionals it's
00:50:41
worth kind of bringing everybody in to
00:50:43
be sure you are accounting for
00:50:45
everything and that there's no blind
00:50:47
spots that we have that's the value of
00:50:49
the team let's transition to some of the
00:50:52
tax things because you mentioned some
00:50:54
tax considerations obviously and I know
00:50:57
that you'll hear whether it's you know
00:50:58
whether you hear people chatting at the
00:50:59
barbecue or you see someone post about
00:51:01
it on Facebook or there's a lot of side
00:51:03
conversations amongst you know the lay
00:51:05
people the civilians people who maybe
00:51:07
aren't immersed in finance topics every
00:51:09
day and they might say things like oh
00:51:11
yeah I'm going to I'm going to open up a
00:51:12
little side hustle because you know
00:51:14
everything I do becomes a write-off or
00:51:16
they're going to say something like oh
00:51:17
well you have kids like you should start
00:51:19
a business just put your kids on payroll
00:51:21
because there's XYZ benefits I won't go
00:51:23
into this one but this is a true one
00:51:25
that thankfully has changed so my dad
00:51:26
worked at a Miller Brewing facility here
00:51:28
in Upstate New York and some of his
00:51:30
colleagues would open a oneperson church
00:51:33
because if you were the ordained
00:51:35
minister of the Church of house Kramer
00:51:37
you're you're a church and you're a
00:51:39
nonprofit and then you you don't pay any
00:51:40
taxes well the IRS stamped that one out
00:51:42
pretty quick but uh anyway let's go back
00:51:45
to the the question at hand whether it's
00:51:47
everything is a write off or my kids are
00:51:49
on payroll or these other kind of hacks
00:51:51
that you hear I mean are there any what
00:51:54
I would call legitimate or perfectly
00:51:56
legal quote unquote hacks out there when
00:51:58
it comes to opening up a small solo
00:52:00
business and paying less taxes we first
00:52:02
have to ask the question is this a
00:52:05
legitimate business are you because the
00:52:07
IRS does see things differently if you
00:52:10
are making a profit if it's a business
00:52:12
if you have business activities versus
00:52:14
is this just a hobby and you can't get
00:52:17
that past the IRS I wouldn't try to get
00:52:20
that past the IRS so we have to be
00:52:22
making a profit and there's rules around
00:52:25
that as well and then it's not as simple
00:52:27
as I'm going to open up an LLC and then
00:52:29
get a credit card and just start putting
00:52:31
things on my LLC credit card that's all
00:52:33
right offs that's not the case at all
00:52:35
every write off or business expense has
00:52:38
to be a legitimate business expense you
00:52:40
know even for myself who has a business
00:52:42
I I have to be very careful what I put
00:52:45
on my credit card that is run through my
00:52:47
company it has to be a legitimate
00:52:49
business expense so that's the first
00:52:52
thing we have to figure out is do I even
00:52:54
have a business and if you don't no you
00:52:57
can't open up an LSC you can't write
00:52:59
random things off but once you have a
00:53:01
business yes write offs do become
00:53:03
available to you there are significant
00:53:06
tax advantages to having a business we
00:53:08
get to write things off that the W2
00:53:11
employee does not so anything that is
00:53:13
necessary and legitimate for the
00:53:15
business certainly run through your
00:53:18
business that that can be a write off
00:53:20
now these hacks that we hear a lot about
00:53:22
like hiring my children in one hand yeah
00:53:25
it's legit and on the other hand it's
00:53:27
not for example hiring your
00:53:30
three-month-old as a baby model for your
00:53:33
financial planning business is not
00:53:36
legitimate doesn't make any sense in
00:53:39
very few scenarios do I see a legitimate
00:53:41
reason to put your child on on the
00:53:44
payroll if they are like under 12 years
00:53:47
old I mean really I they have to be
00:53:49
older they have to be able to work and
00:53:52
they have to be working I do have
00:53:54
clients who are solopreneurs who employ
00:53:56
their children and their children all
00:53:58
work I've actually been able to see the
00:54:00
work so it's very clear that they are
00:54:02
all working they are all old enough to
00:54:05
be working we're not just throwing them
00:54:07
on payroll saying that they work to get
00:54:10
the tax savings they have to work and
00:54:12
they have to be old enough for it to be
00:54:14
reason it has to be reasonable
00:54:15
compensation as well so it can't be like
00:54:17
I paid my child who works an hour a week
00:54:20
$50,000 this year that doesn't make any
00:54:23
sense so these hacks there are tax
00:54:25
strategy and then there are hacks and I
00:54:27
wouldn't say any of these are hacks they
00:54:29
are just legitimate business cases and
00:54:32
uses if you are legitimately using these
00:54:35
strategies I wouldn't try to get
00:54:37
anything by the IRS it's just not worth
00:54:39
it the crazy thing is I think most of
00:54:42
the especially most of like those viral
00:54:45
videos or viral insert your preferred
00:54:47
social media here when you look at the
00:54:50
person who's espousing these ideas hacks
00:54:54
it often is someone who has kind of no
00:54:56
professional Financial background it's
00:54:58
not even like they're hobbyist it's
00:55:00
almost like they heard this thing once
00:55:02
for whatever reason they do have
00:55:03
influence within the the the circle that
00:55:05
they're speaking to they they heard
00:55:07
about this good idea and now they're
00:55:08
saying don't you know you can just put
00:55:10
your kid on payroll have them push that
00:55:12
wheelbarrow for an hour one weekend pay
00:55:15
them $7,000 for it which oh
00:55:17
coincidentally is them amount that they
00:55:18
can contribute to a Roth IRA and now you
00:55:21
have this you know quadruple tax
00:55:23
advantage from having your kid on
00:55:25
payroll but having them under the
00:55:27
standard deduction and you know it just
00:55:29
compounds I was going to say that's the
00:55:30
other one the convenient standard
00:55:31
deduction amount and it's like well to
00:55:33
the again to the lay person and a lot of
00:55:35
what we've talked about here Rachel is
00:55:37
the idea that some of these ideas when
00:55:39
presented the right way when presented
00:55:41
with a little bit of Polish and a little
00:55:43
bit of salesmanship maybe a little
00:55:44
fear-mongering up front or a little bit
00:55:46
of you might not believe it but this is
00:55:48
really true if you say it to the someone
00:55:50
who doesn't know better they might think
00:55:51
it's true and next thing you know you
00:55:53
have someone who's walking down a risky
00:55:56
path towards getting in trouble just
00:55:58
with their Investments overall getting
00:56:00
in trouble with the IRS and so it just
00:56:02
kind of shows the benefit of doing your
00:56:04
research pulling information from many
00:56:06
different sources it'd be great if
00:56:08
Rachel C on social media is one of those
00:56:10
choices if the best interest blog and
00:56:12
podcast is one of those sources I think
00:56:14
we both put out pretty good work but
00:56:16
just the idea that you can't see
00:56:18
everything that you believe out there on
00:56:19
the internet yeah and you know I'm
00:56:21
really grateful for the perspective that
00:56:23
we have in working with clients because
00:56:25
I think if I creating content with the
00:56:27
experience the knowledge that I have I
00:56:29
think I wouldn't take some of these
00:56:31
things too seriously and maybe I
00:56:33
wouldn't speak to them but the reality
00:56:35
is you know I work with really
00:56:37
successful smart people and they still
00:56:40
come to me with some of these strategies
00:56:42
that I think are ridiculous but how are
00:56:44
they to know if they don't have the
00:56:46
background that we have so as much as we
00:56:49
can laugh about them and find them
00:56:51
ridiculous ourselves this content is
00:56:53
actually really dangerous and I think
00:56:55
it's worth worth it for people like us
00:56:57
to speak out against it and to be really
00:57:00
vocal about it because sometimes people
00:57:03
will see me speak out against it and
00:57:04
think well who's really falling for that
00:57:06
and I do have the perspective that there
00:57:08
are people who are falling for it
00:57:10
because again unless you have that
00:57:14
Financial background this stuff is
00:57:16
really confusing and complex and some of
00:57:18
these people use that to their advantage
00:57:21
to say I know how complex the tax system
00:57:23
is I know that you're afraid of running
00:57:25
out of money it's I'm going to talk
00:57:27
about these strategies to get your
00:57:28
attention or to make you afraid enough
00:57:30
and it works because of the lack of
00:57:32
information that's out there so it
00:57:34
frustrates me but it also just motivates
00:57:36
me to keep talking about it I have a
00:57:39
great tidbit for you Rachel and for
00:57:41
anyone listening if anyone ever comes
00:57:43
back to and they're like well Rachel
00:57:44
who's falling for that and this is a
00:57:46
truism that once it was pointed out to
00:57:47
me I I now see it everywhere and I was
00:57:49
like oh wow that is kind of true and the
00:57:51
idea is that anytime you see a marketing
00:57:54
strategy that you're at first dismissive
00:57:57
of and the one that comes to mind is say
00:57:59
like I don't know if you have this in
00:58:00
your area or where you grow up or where
00:58:02
you are now Rachel but the one auto
00:58:04
dealer whose commercials are just like
00:58:07
off thewall zany stupid loud like do do
00:58:11
you have that car dealer like listeners
00:58:12
you know who I'm talking about and so
00:58:14
some of us might see that and just be so
00:58:15
turned off by it and we're like like who
00:58:17
would buy a car from that guy but then
00:58:20
you see the commercial again and again
00:58:22
and again for years and you know at a
00:58:24
time and the simple truth is well if if
00:58:26
they're still doing it it's working on
00:58:28
someone so maybe it doesn't work on you
00:58:30
and that's fine but it's obviously
00:58:31
working on someone otherwise they would
00:58:33
stop doing it and so when it comes to
00:58:35
these social media videos of
00:58:37
fear-mongering tactics and just outright
00:58:39
lies and Straw Men and just and you and
00:58:42
someone says well Rachel who's falling
00:58:43
for this video that you're kind of poo
00:58:45
pooing on on your own YouTube well
00:58:47
somebody is because those videos are
00:58:49
everywhere and they're constant and
00:58:51
they're always there so I think it backs
00:58:53
up what you're saying Rachel which is
00:58:54
that people are falling for this and I
00:58:56
can attest to exactly what you said
00:58:58
which is I get questions from real
00:59:00
clients who will sometimes it's just as
00:59:03
simple as like they'll send me an
00:59:04
Instagram post a link and they'll just
00:59:06
say is this legit which okay at least
00:59:09
they're I'm glad they're asking but
00:59:10
clearly it just got them thinking like
00:59:12
this seems like it might be real and it
00:59:14
seems beneficial but is it legit yeah
00:59:16
and I'm really glad they send it to me
00:59:17
because it's most of the time we know
00:59:19
what the answer is right not not really
00:59:22
I have several clients who because of
00:59:25
who found me social media and because of
00:59:27
you know our conversations but also what
00:59:29
I post on social media I I post a lot
00:59:32
about you know be careful with whole
00:59:33
life insurance be careful with insurance
00:59:35
agents there's a lot of red flags and I
00:59:37
have gotten emails I got an email today
00:59:39
from a client saying I have an insurance
00:59:42
agent they keep pestering me about whole
00:59:44
life and I immediately thought red flag
00:59:47
and I wanted to run it by you and it
00:59:49
just it makes me so happy because
00:59:52
several times when clients will say this
00:59:54
they say that they actually use the
00:59:55
language I use they say red flag and so
00:59:58
I know when I'm saying that on social
00:59:59
media it actually is having an impact on
01:00:01
people and I can see it in my clients
01:00:05
and uh I can't imagine you know maybe
01:00:07
who else has read what I've said and has
01:00:10
experienced that with an insurance agent
01:00:12
it put up a red flag they hesitated they
01:00:15
maybe took a little bit more time just
01:00:17
because we spoke out against it and just
01:00:19
said hey just be careful and proceed
01:00:21
with caution here and I have firsthand
01:00:23
experience of it working with my clients
01:00:25
which is just so exciting to me I think
01:00:27
we just found an episode title Rachel
01:00:29
red flag Finance scamps that'd be a good
01:00:32
one is there anything else on like the
01:00:34
business or solopreneur or just like you
01:00:36
know I want to make sure that we shine
01:00:38
the spotlight on you and get you to talk
01:00:40
about you know that kind of Ideal client
01:00:43
just in case someone's listening who
01:00:44
would want to come work with you because
01:00:46
I didn't get to those bottom bullets of
01:00:47
the retirement accounts or the insurance
01:00:49
or the business succession planning but
01:00:51
what what are your thoughts I think
01:00:53
initially you know organization is
01:00:55
really an important and maybe some of
01:00:56
the big mistakes I see is the
01:00:58
intermingling of personal and business
01:01:01
accounts so just as soon as we can to
01:01:03
make sure to get those separated that's
01:01:06
going to help tremendously with
01:01:08
organization that's a big mistake I see
01:01:10
and then yeah soon after once you are
01:01:13
profitable we can look at optimizing
01:01:15
retirement accounts I'm a huge fan of
01:01:17
the solo 401K for a solar preneur I
01:01:19
think it always makes or almost always
01:01:21
makes the most sense there's step IRAs
01:01:23
there's simple IRAs there's several
01:01:25
options out there but I find not as many
01:01:28
people know about the solo 401K so I I
01:01:31
encourage you to look into that it's
01:01:33
becoming easier to use easier to set up
01:01:36
you know less costly less administrative
01:01:39
burden so I love the solo 401K for
01:01:42
solopreneurs but yeah initially you know
01:01:44
the big thing is that that organization
01:01:46
and making sure we're separating out our
01:01:48
business and our personal assets and
01:01:51
accounts because there is a liability
01:01:54
there and we want to make sure that we
01:01:55
protect our eles awesome Rachel so
01:01:57
whether someone listening right now is a
01:01:59
solopreneur who wants to ask you some
01:02:01
questions or maybe they're worried
01:02:03
they're falling for a red flag Finance
01:02:04
scam and they want to check out some of
01:02:06
your your social media to make sure that
01:02:08
they're on the up and up where can
01:02:10
people connect with you find your
01:02:13
content I mean where would you point
01:02:14
someone to Rachel yeah so I am really
01:02:17
active on Twitter campore wealth trying
01:02:19
to get Jesse back on there but basically
01:02:22
everywhere else Instagram YouTube you
01:02:24
can find me at campwell and then my
01:02:26
website is Rachel Camp wealth.com so you
01:02:29
can just go there and go to my media and
01:02:31
you'll find everything I've put out
01:02:32
there awesome we will throw all those
01:02:34
links and any other relevant links we've
01:02:36
talked about today in the show notes
01:02:39
tinest JC is still out there on Twitter
01:02:41
once in a while I get a message but
01:02:43
sorry Rachel I I just had I had to leave
01:02:45
Twitter behind had to focus a little
01:02:48
more on the other stuff but thank you so
01:02:50
much for stopping by the best interest
01:02:52
podcast thanks
01:02:54
Jesse thanks for tuning in into this
01:02:56
episode of the best interest podcast if
01:02:58
you have a question for Jesse to answer
01:03:00
on a future episode send him an email at
01:03:03
Jesse bestin interest. blog again that's
01:03:06
Jesse at bestter interest. blog did you
01:03:09
enjoy the show subscribe rate and review
01:03:12
the podcast wherever you listen this
01:03:14
helps others find the show and invest in
01:03:17
knowledge themselves and we really
01:03:19
appreciate it we'll catch you on the
01:03:20
next episode of the best interest
01:03:22
podcast
01:03:26
the best interest podcast is a personal
01:03:28
podcast meant for education and
01:03:30
entertainment it should not be taken as
01:03:32
Financial advice and is not prescriptive
01:03:34
of your financial situation
