what's up you guys it's Graham here so CNBC recently found that 63% of Americans would be unable to pay for a $500 emergency and when I first read this my initial thought was that this is unacceptable and it has to change after all the unfortunate reality is that Financial education isn't emphasized within the school district so most people grow up never knowing how to manage their money quite a few parents don't know how to teach their children about money either because they themselves don't understand it as well and if that isn't bad enough talking openly about money is still quite a taboo subject for some reason honestly it's quite a shame because despite what you might think being able to get rich and stash away a ton of money is a lot simpler than you'd expect and if you could just learn the basics it becomes insanely easy to be able to turn a 100 into a th000 into 10,000 into 100,000 into eventually a million dollars especially when one study found that 80% of millionaires come from families at or below middle income level so as a bit of a solution to this here's exactly what you need to know the step by step blueprint that every wealthy person follows how and where you could get the highest risk adjusted returns and then finally where I am putting my own money over the next 10 to 20 years since i' like to think I put my money where my mouth is I think I'm doing this right although before we start as usual if you appreciate videos like this all I ask for in return is that you hit the like button and subscribe doing that just helps out the channel tremendously and as thank you for doing that I'll do my best to respond to as many of your comments as possible so thanks so much and also big thank you to Surf shark VPN for sponsoring today's video but more on that later all right so in terms of where to start let's get back to the basics no matter who you are what you do or how much you have invested everybody I know optimizes for something they're always going to keep and that would be cash when it comes to this the reality is most people have no idea how much money they spend or where they spend it on all they know is that they have a certain amount of money in their bank account or certain limit on a credit card and that's what they could afford then when their account gets too low they cut back on purchases until the next paycheck comes in and then the cycle repeats itself but this is not how wealthy people manage their money so if you would like to optimize for cash which arguably is the entire Foundation of being able to build a lot of wealth start by tracking your expenses over the next 60 days using a software like rocket money you need a budget every dollar Monarch money or even your own Excel spreadsheet and then log every penny that goes into and out of your account from there you could determine if you're spending spending money on things that don't matter if you're making short-term impulse purchases if you're overspending on categories that you could negotiate or get for way cheaper and then hopefully you could cut back and reduce some of those expenses from my experience just by doing this one thing you should be able to save an extra 10 to 15% because just like a diet once you become aware of the details you could begin optimizing for everything without exaggeration there has never been a better time than now in the last 20 years to make money on your money since high you skeld savings accounts are at worst paying you at least 4% and with a little finessing you could even earn 5% or more like Al bank is currently paying you 4. 2% and they're a completely online bank that does nearly everything you'd ever want them to do for completely free or wealth front is currently offering 5% in your money and Robin Hood Gold members could get 5% as well alternatively if you have some money that you don't mind sitting on the sidelines for a little longer you could also look into treasury money market funds which are currently paying above 5 % like viix from Vanguard or swiv zix from Schwab personally I've taken the approach of keeping about 20% of My overall portfolio and a mixture of high yield savings accounts money market funds and treasuries where I'm currently getting paid above 5. 2% to me this is money that I'm saving for the near future and it's also my sleep at night funds knowing that no matter what happens to my income the economy or my investments I have this to fall back on and it's earning a pretty decent return in the process now next second once you built up a small cash position now is the best time to begin paying down high interest rate debt look the fact is debt is starting to become a massive problem and if you don't believe me take a look at the numbers the average American now owes more than $22,000 credit cards car loans and personal loans make up almost all of this and at today's interest rates if you don't make an active effort to pay it down you could easily be losing out on thousands or tens of thousands of dollars a year so here's how I approach debt if the interest rate on my debt is higher than what I'm able to safely generate from my investments then I pay off the debt no matter what and if the interest rate is lower then I pay it off as slowly as possible and I invest the difference instead or basically all you have to do is take a look at the debt you have and ask yourself this question can I get a risk-free guaranteed higher return somewhere else if the answer to that is no then pay off the debt although if you want to pay the debt down as fast as possible there's two strategies to go about doing this the first is called the Avalanche method and mathematically this is the perfect way to pay down debt this works by paying down the highest interest rate debt first that's costing you the most money and then once that's fully paid off you'll pay down the next highest interest rate and the next and the next until eventually it's all paid off on the other hand the second method to pay down debt takes on a more psychological approach and that's what's called the snowball method this works by paying down the smallest balance first regardless of the interest rate and then paying off the next smallest balance and so on the reason this works so well is because you'll get the psychological win of being able to pay off debts in their entirety and by doing that you'll get the Boost to be able to continue longterm and stick with it honestly it doesn't matter which one you pick both methods work incredibly well and really at the end of the day just pick something and stick with it although third arguably the most important part of this entire video when it comes to investing especially if you're just starting out looking to starting up a Roth IRA although before we go into that I just want to say I find it shocking how much time people spend securing their finances and then they make no effort whatsoever to secure their personal information and make sure it's safe for instance I've been traveling a lot to film guests from my podcast the iced coffee hour and I've read horror stories of people connecting to random Wi-Fi networks on the road like I'm talking hackers being able to see their banking information keystrokes and browsing history this is why it's so important to keep your online identity safe no matter where you are and our sponsor surf shark VPN is there to help for those una aware a VPN works by encrypting your online data and help secure your personal information masking your IP address and preventing Hackers from identifying your City Country and download history or basically a VPN works by swapping the real location of your device with a new one giving you the ability to virtually travel just about anywhere on the globe for instance I recently traveled to Japan and I was able to use a VPN to swap my location back to the United States so that everything would work as normal or I guess this also works in Reverse like did you know that you could watch the Harry Potter series on Netflix in the United Kingdom just swap your location and you're good to go on top of that surf shark's clean web feature also blocks ads trackers malware and fishing attempts allowing you to surf the web safely this means there's no connection or activity logs whatsoever so you can rest assured that your activity is private so if you're interested secure your privacy with surf shark just make sure to enter the coupon code Graham for an extra 4 months free at surfshark dodeals Gram there's also a 30-day money back guarantee so it's risk-free to be able to try it out and see what you think again the link is down below in the description to get started today day and now let's get back to the topic at hand a Roth IRA this is an account that you can contribute up to $7,000 a year into and then by the time you're 59 A5 all of the profit that you make within the account is completely tax-free even better but you're also able to pull out any money you contribute to the account at any time and without any penalty so essentially if you make under $161,000 a year as a single person this is the Pinnacle to Building Wealth as efficiently as possible as an example of this for the sake of simplicity let's just assume you ignore the rest of the video and all you do is just max out your Roth IRA each and every year to the tune of $7,000 if you start doing this at the age of 20 and you retire at the age of 65 while earning an average return of 8% in the stock market which is something that we'll cover very shortly you're going to have $3,145 th000 invested while owing absolutely nothing to the IRS not to mention the ideal time to start and contribute to one of these accounts is when you're young and not earning a lot of money since what you're probably already in a low tax bracket so you have more after tax income left over to invest with and two you have decades to let compound interest grow your money into something significant separate from that though in terms of where to open a Roth IRA practically every brokerage offers one at this point they take anywhere between 10 to 20 minutes to set up and it's largely up to personal preference and that of course brings me to the next part of the video that could either make or break your entire investing career and that would be choosing your Investments even though it's relatively simple the truth truth is very few people have the discipline to actually follow it without getting caught up in the premise of get rich quick so if you want the blueprint to Building Wealth long term for most people this is how you're going to do it first diversify this means that you should never invest all of your money into one stock into one cryptocurrency into one place because if you do there's a chance that you could lose a significant amount of money for example tech stocks lost 78% during the.
com bubble housing prices declined more than 50 to 70% depending on the area and cryptocurrency fell as much as 99% depending on the project point being you have to spread out your money throughout different companies asset classes and sectors so that if something happens to one of them you have something else to fall back on second don't try to beat the market even though it's tempting to want to utilize alternative Investments pick your own stocks and try to get higher returns in your portfolio the reality is almost everybody fails like even the best hedge funds and investors can't beat the market consistently with every resource at their disposal so unless you work for congress I wouldn't even try instead you should try to ride the market in its entirety and sometimes the most simple approach is also the most effective like third stick with index funds a few years ago Warren Buffett famously said that this is the single best investment for the vast majority of people and I don't think he's wrong index funds offer a wide variety of stocks and industries they're incredibly Diversified and best of all they're very cheap to own for example Fidelity offers no fee index funds that cover just about anything that you'd want to buy and this is also how I'm investing my own money even though it sounds boring most of my stock market portfolios comprised of just two funds 80% S&P 500 and 20% International that's it it's nothing fancy but it's stable for what it is and it covers the entire world and finally fourth assuming you do the above just dollar cost average and do nothing for a very long time unfortunately I would venture to say that for most people this is the most difficult part to follow because even if you get everything else right if you panic sell at the bottom and you don't keep buying when the market drops you could potentially miss out on some record profits when the market eventually does recover and That Could set you back a lot like just imagine you panic sold in March of 2020 because you believe the market would fall further and you could buy it back cheaper you would still be waiting or imagine you sold at the peak because stocks are really expensive and then the market just kept going higher the fact is practically every study out there has shown that a Buy and Hold approach over a well Diversified portfolio long-term wins in the vast majority of situations although in terms of how much you could expect to earn from something like this here's where things take a bit of a turn over the last 100 years the S&P 500 has averaged an annual return of 10. 6% with dividends reinvested and over the last 14 years that amount is 13. 4% although the bad news is that that doesn't mean you're guaranteed to see those same type of returns in the future unfortunately your overall average return really just depends on two things one when you start investing and two how long you invest for example the S&P 500 averaged a negative 5.
2% return from March of 2000 through March of 2009 which coincided with the peak of the dotcom bubble and the bottom of the Great Recession but if you started investing in 1978 and continued until the year 2000 you would have seen a 17. 4% average return this suggests that even though we could look back historically and see that 20-year rolling returns have always been positive annual returns could range anywhere from 2% the worst case to 18% the best case and it's completely possible that future 20-year returns could look entirely different all of this brings me to a really interesting study that ask the question with stocks trading at the levels they currently are what would it take for us to see a repeat of the last decade's performance or basically How likely are we to see another decade of 12. 8% annualized returns that so many people have grown accustomed to well to answer this the author makes the point that these last 10 years have been exceptionally good for investors coming in well above the 90th percentile of rolling 10e performance since January of 1950 he summarized that much of this has to do with the fact that the Federal Reserve has kept interest rates at such low levels that it forced investors to place their money into the markets if they wanted any meaningful return whatsoever this also coincided with strong earnings growth which led to record stock market profits however now that interest rates are hovering near their highest level in decades this author makes the argument that the price to earnings ratio would have to double from its current value in order for the stock market to post a Repeat Performance nearly 40% higher than the tech bubble Peak although of course there's also earnings growth to consider because over the last 30 years companies have benefited from declining interest rates and lower taxes but to have another decade of record performance would have to include 6% real earnings growth which is roughly the best ever outcome over a 10-year period during normal non-recessionary times or I guess simply put don't expect that these types of returns will continue indefinitely that's why in terms of what we could realistically see Vanguard went on record to say that they've downgraded our us Equity return expectations to an annualized 4.
2 to 6. 2% over the next 10 years Charles Schwab also tends to agree with this having updated their prediction that us large company stocks will increase by an annualized rate of just 6. 2% over the following decade I say all of this just to set the expectation that earning 12 to 15% a year in the stock market is not normal it's very difficult to sustain and it's not something that you should keep in mind if you want to invest longterm instead we should set the expectation that long-term averages are something to consider and over the next 20 to 40 years it's looking more and more likely that we could see the average 7 to 8% returns which have been more consistent throughout history although in terms of how I'm investing my own money given everything we've just discussed here's my entire strategy and hopefully you find this type of transparency helpful so here's my entire portfolio breakdown as you're about to see I've taken the approach of stability and diversity because is uh honestly I really dislike losing money I don't know for whatever reason it just stresses me out when I see my investments decline in value even if it's shortterm I also tend to price in the worst case scenario possible and then back model based on that so everything is really optimized for safety and consistency I guess in part this is kind of why 35% of my portfolio is held in residential real estate these consist of properties that I purchased between 2011 and 2020 throughout Southern California and most of them were fixer opers that I renovated and later rented out for a profit all of them have long-term tenants all have mortgages that are fixed for 30 years between an interest rate of 2.
8 to 3. 3% and overall it's been incredibly stable on top of that the values of these properties have gone up significantly I have no difficulty renting a vacancy usually within about a week and the repairs have been somewhat minimal for what it is the second another 35% is held throughout index funds like I mentioned earlier practically all of my portfolio is simply two funds 80% % S&P 500 and 20% International stocks and that's really it all I do is buy and hold on a regular basis regardless of where the price is I don't intend on touching this money for another 20 to 30 years and honestly it's just a really set it and forget it approach and third like I mentioned earlier another 20% of my portfolio is held throughout treasuries high yield savings accounts and money market funds that are earning about 5. 2 to 5.
3% even though in hindsight this should have been invested in the markets because the markets have done incredibly well I like having cash on hand to cover business operating expenses overhead living expenses real estate Renovations repairs or anything else that just might come up plus earning 5.
