featured image for podcast episodeIf I Could Turn Back Time

If I Could Turn Back Time
Episode 291

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Episode Guide

The episode explores valuable lessons learned over four years of podcasting, focusing on personal finance insights and key takeaways that can help listeners optimize their financial journeys. Jonathan and Brad reflect on pivotal moments, discussing investment strategies, the importance of avoiding fees, and the benefits of diversification. They emphasize actionable decisions like negotiating salaries, the impact of early investments, and the effectiveness of maintaining simplicity in financial strategies. The discussion further addresses systemic challenges in the financial landscape and encourages listeners to take charge of their financial independence by focusing on skills and informed decision-making.

Episode Timestamps

ChooseFI Episode Show Notes

Episode Summary

In this episode, hosts Jonathan Mendonsa and Brad Barrett reflect on four years of podcasting, discussing key financial insights and strategies that lead to financial independence. They emphasize avoiding fees, diversification, the compounding effect of investments, and the significance of entrepreneurship in financial planning.

Key Takeaways

  1. Start Early and Save Consistently

    • Saving as early as possible is crucial to leverage compounding interest over time.
    • "It's never too late to start your financial journey."

  2. Avoid Fees to Maximize Gains

    • Reducing or eliminating fees can save millions over a lifetime.
    • "Eliminate fees and diversify: own a piece of everything."

  3. Diversification in Investments

    • Diversifying your investment portfolio helps manage risks and achieve more stable returns.
    • "Avoid the fees and diversify, just buy them all."

  4. Incremental Improvements Lead to Significant Gains

    • Small improvements in investment strategies can lead to massive financial outcomes.
    • "A half percent improvement equals a million-dollar gain."

  5. Value of Entrepreneurship

    • Entrepreneurship offers unique opportunities for increased income and financial control.
    • Discussing the role of entrepreneurship in achieving financial independence.

  6. Time as a Non-Renewable Resource

    • Recognizing the value of time in financial planning can lead to better wealth management strategies.
    • "Time is your most valuable non-renewable resource."

Timestamps & Chapter Markers

  • Introduction and Overview
  • Key Principles of Financial Independence
  • Investing Strategies and Lessons Learned
  • Reflections on Entrepreneurship
  • Tools and Resources for Financial Independence
  • Conclusion and Next Steps

Actionable Takeaways

  • Evaluate your current fees and identify areas to cut back.
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  • Implement a savings plan that prioritizes early and consistent contributions.
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  • Explore ways to diversify your investment portfolio.
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  • M1 Finance Software: ChooseFI.com/m1
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  • Book 'The Simple Path to Wealth': Link
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Discussion Questions

  • What are your biggest takeaways from your financial journey?
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  • How has your understanding of fees and investments changed over time?
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  • What role do you believe entrepreneurship plays in achieving financial independence?
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Quotes from the Episode

  • "Each half percent improvement that we can make is an extra million dollars." Timestamp:
  • "What is the most precious non-renewable resource? Your time." Timestamp:
  • "The best way to learn something is to do it." Timestamp:

Conclusion

The episode concludes with a reaffirmation of the financial independence journey and the importance of adapting and optimizing personal finance strategies. Stay tuned for more insights in upcoming episodes.

Podcast Extro: You've been listening to the ChooseFI Podcast, where we help middle-class America build wealth one life hack at a time.

Unlocking Financial Independence: Key Lessons from Four Years of ChooseFI

In the journey towards financial independence (FI), many lessons learned can significantly impact your strategies for saving, investing, and planning. Drawing from the insights discussed by Jonathan Mendonsa and Brad Barrett in their retrospective on the ChooseFI podcast, here are actionable recommendations to help you achieve financial independence effectively.

The Importance of Starting Early

One of the most critical financial lessons is the necessity of starting your financial journey as early as possible.

  • Actionable Advice: Regardless of your current age, initiate your savings and investing now. The earlier you begin, the more likely you are to take advantage of compounding interest, which can exponentially grow your wealth over time.

For instance, if you invest $1,000 at an annual interest rate of 8%, it will double approximately every nine years, according to the Rule of 72. The sooner you start saving, the more times your money has to double.

Avoiding Fees: Protect Your Investments

A primary theme emphasizes the significance of avoiding unnecessary fees in investing.

  • Eliminate Fees: Frequent fees can erode long-term wealth. Aim to minimize or eliminate fees related to financial advisors or managed funds. According to the guests on the podcast, small fees can amount to losses worth millions over a lifetime due to compounding effects.

Consider low-cost options such as index funds that generally have lower expense ratios compared to actively managed funds. Every percentage point you eliminate in fees can save you a considerable sum over time.

Diversification: A Safety Net for Your Investments

Diversifying your investment portfolio can help manage risks.

  • Own a Diverse Range of Assets: Instead of concentrating your investments in a few stocks, diversify across multiple asset classes, including stocks, bonds, and real estate. This strategy helps ensure that if one area underperforms, others can compensate.

Owning a piece of everything—what is often referred to as a broad-market index fund approach—enables you to capture growth across different sectors without chasing individual stocks.

Incremental Improvements Lead to Big Gains

Improvement in your investment strategies doesn’t have to be drastic; even small gains can accumulate significantly over time.

  • Focus on Marginal Gains: Each decision you make can have a substantial long-term impact. For example, a half-percent annual improvement in your portfolio’s return can lead to a million-dollar gain over several decades. Identify and implement a few small but impactful changes consistently.

Value of Entrepreneurship

The podcast highlights the essential role entrepreneurship plays in achieving financial independence.

  • Explore Entrepreneurial Opportunities: Starting your own business or side hustle can increase income, giving you more flexibility in your financial strategy. This additional income can be redirected toward investments, speeding up your journey toward financial freedom.

Consider leveraging hobbies or skills into a side business to diversify your income streams while developing valuable experience.

Emphasize Consistent Saving Habits

Saving consistently is crucial, regardless of how small the contributions may initially seem.

  • Implement a Savings Plan: Create a saving strategy that aligns with your financial goals. Commit to setting aside a fixed percentage of your income for investments and savings every month. Automate your savings to ensure that you stick to this plan.

Initially, this may seem difficult, but the power of compounding means that small, regular contributions can lead to substantial wealth over time.

Educate Yourself on Investment Strategies

The best way to learn about investing and personal finance is through direct experience and education.

  • Engage in Continuous Learning: Invest time in learning about investment strategies. Read books, listen to podcasts, and take courses on personal finance to enhance your understanding. As you grow more knowledgeable, you'll feel more confident in making informed financial decisions.

Utilize Technology to Your Advantage

Leverage financial tools and platforms to streamline your investments.

  • Adopt Financial Management Tools: Make use of applications and technologies that simplify investing and managing finances. Consider using platforms like M1 Finance that allow you to automate investment strategies, making it easier to maintain a diversified portfolio and optimize returns.

Reflect on Your Financial Experiences

Taking the time to reflect on your financial journey can bring additional insights.

  • Conduct Regular Reviews: Periodically review your financial decisions, strategies, and lessons learned. This reflection can provide clarity on what is working and what needs adjustment. Use this insight to fine-tune your approach and stay on track toward your goals.

Conclusion: Your Path to Financial Independence

Achieving financial independence requires strategic planning, consistent efforts, and a mindset geared towards learning and improvement. By following these actionable insights inspired by the ChooseFI podcast, you will be better equipped to navigate your journey towards financial freedom effectively. Remember, it's never too late to start—take control of your financial journey today!

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What You'll Get Out Of Today's Show

  • After four years of working on the ChooseFI podcast, Brad and Jonathan want to share their lessons learned, the list of things they might do differently, and highlight a few episodes to re-listen to.
  • Brad is back in the studio after missing out on Episode 290 with Paul Merriman. He's doing fine and appreciates everyone's concern.
  • With Paul Merriman's Ultimate Buy and Hold Portfolio strategy, the thesis is that diversity is great, but own equal amounts of all asset classes versus a cap-weighted index fund to capture the growth potential of small companies. Unfortunately, for the last 12 years, the majority of growth has come from large companies.
  • Brad says Paul's book reads like a FI manual with a high-level overview of small steps that could be million-dollar decisions.
  • The decisions are not little. As discussed in Brad's The FI Weekly email this week, the Rule of 72 states how long it will take you money to double at a given rate of return. 72 divided by the rate of return is how many years before the money doubles. For example, 72 divided by 8% equals 9 years to double your money.
  • The impact of that last double can be worth millions, that's why getting started early is critical. If your new and haven't already, today is the day to start.
  • Jonathan agrees Paul's book is a great FI primer and was surprised by how much he enjoyed reading it. He says it would make a great gift.
  • ChooseFI often talks about the aggregation of marginal gains. It can be quantified as each half a percent improvement means we can make an extra million dollars. Come up with 10 and that's an extra $10 million over your investing lifetime. If you can't do all 10, pick three or four and implement early, aggressively, and consistently.
  • If they could turn back time and look at how their own understanding has grown and developed over the last four years, what would the conversation look like from both micro and macro views?
  • Starting with investing, in the beginning, the most powerful concept inspired by JL Collins was to avoid the fees, a sentiment echoed by Paul Merriman as well. Diversity and time in the market are also key.
  • You will lose approximately 40% of your total net worth when invested with a financial advisor at 1% in a mutual fund with a 1% expense ratio. The dramatic loss happens when your gross 8% market return is reduced to just 6% after fees.
  • In Episode 052 with Todd Tresidder, he highlighted that there are three asset classes you could invest in, paper, like the stock market, entrepreneurship, such as starting your own business, or real estate.
  • Inside of paper assets like the stock market, Todd says complexity can be valuable, but others like Big Ern and Rick Ferry say most people will do far betting sticking with something simple they understand.
  • It's important to talk about the things that will increase the likelihood of success then discuss nuance. While Brad craves simplicity, Jonathan enjoys learning more. There's no one right answer, only what works for you.
  • Jonathan always conflated individual stock purchases with day trading, but episodes with Brian Feroldi helped him realize they are not the same.
  • For Brad, individual stocks always seemed like gambling. While he doesn't advocate having a huge percentage of your net worth in individual stocks, it's no longer the 0% he would have advocated for years ago.
  • The software available through M1 Finance allows Jonathan to implement the complexity associated with some of these strategies and maintain them simply.
  • As for investing in entrepreneurship, it has become something Jonathan loves doing. It's an investment he has total control over, as discussed in episodes with Alan Donegan after he pointed out entrepreneurship was left off the Pillars of FI list.
  • After a disastrous real estate failure in his 20s, Brad learned real estate investing can be a significant part of his portfolio if you are investing and not merely speculating. He now owns two single-family rental properties which have been successful so far.
  • When you decide to start adding complexity, the price that's paid is usually time.
  • Jonathan believes we are all stuck in a system, but the FI community is working to break out of the system in the best possible way to bring control back over their lives.
  • Following the path to FI by saving money gives you options, power, and agency.
  • In every aspect of life, look at the rules of the game, survey the field, and make the best decision that's going to work for you.
  • Skills are more valuable than degrees. Upcoming in a future episode is Anita, who recently graduated from the Talent Stacker program. Coming from the hospitality industry, she had a four-year degree that left her with massive debt. After two to three months of training in a new industry for just a couple thousand dollars, she's now making multiples of what she was before.
  • The best way to learn something is to do it. If we can build a system around that, we can eliminate the need to wait four to eight years and go into debt. That's what Jonathan and Bradley Rice did with their course.
  • An 18-year-old who skips college, takes the course, and comes out making 60-80 thousand dollars a year can be Coast FI at age 25. with Coast FI where you have enough saved and invested and will never need to save another dollar again and have a net worth more than other at traditional retirement age.
  • M1 Finance's Plus feature normally costs $125/year, but right now you can get the first year for free. With M1 Plus you get a 1% yield on online checking and they will reduce your M1 borrow rate. Jonathan doesn't have a HELOC because a margin loan from his M1 investments is so powerful.
  • M1 introduced a new feature called a smart transfer. ChooseFI's CEO, Ed, has been testing it out. The current borrowing rate is 1.5% less for someone with M1 Plus.
  • Because Ed is retired, he hasn't been able to refinance his home at the historic low rates. Instead, he did hi sown refi with M1 Borrow.
  • Although Ed came to M1 to hack his mortgage, he decided to stay for the checking yield. Then he found the smart transfer tool.
  • Similar to Zapier, smart transfer allows you to create rules to manage your finances. With simple rules-based drag and drop programming, you can always have enough in your M1 Spend account to earn the most yield, pay all your bills, and be optimally invested in the market.

Resources Mentioned In Today's Conversation

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